Economy rebounds across most sectors

New Zealand’s economy grew 1.1% in the September quarter, rebounding from a 1.0% decline in June and outperforming most forecasts. Growth was broad-based, with 14 of 16 industries recording increases, and improvements evident in retail spending, manufacturing and construction. This marks a significant turnaround for the economy following its 2024 recession.

However, volatility remains a concern. Over the past five quarters, the economy has swung sharply, posting growth of more than 1.0% in two quarters, while contracting by 1.0% or more in two others.

Monetary policy has played a key role in supporting the recovery. The Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate from 5.5% in August 2024 to 2.25% in November 2025 to stimulate activity. These reductions are beginning to ease mortgage repayments, boosting household spending.

Signs of improvement in household finances are emerging, with real gross national disposable income up 0.7 % in Q3 and real income per capita rising 0.5%. However, the rate-cutting cycle appears to be nearing its end, with the RBNZ’s central projection indicating no further reductions in 2026.

Business investment is also showing renewed optimism. Gross fixed capital formation rose 3.2%, driven by a 3.6% increase in business investment, including a 4.9% rise in plant, machinery and equipment, and a 15.7% surge in transport equipment.

Annual inflation rose to 3.1% in the December quarter from 3.0% in the September quarter, placing it above the RBNZ target range of 1 to 3% and higher than the Bank’s November forecast of 2.7%. This stronger than expected outcome reinforces the view that the easing cycle has effectively ended, with inflation pressures proving more persistent than anticipated.

Labour market conditions remain soft but show early signs of stabilisation. The unemployment rate increased to 5.3% in the September quarter, and forward indicators suggest it will remain close to this level in the near term. Employment was flat in the third quarter after four consecutive quarters of decline and remains around 0.6% lower than a year earlier, indicating that spare capacity is still present in the economy and that labour demand remains subdued.​‌

Persistent labour market weakness over the past two years has driven higher outward migration from New Zealand, particularly to Australia. Regional disparities in housing and labour markets have also likely encouraged internal migration. Outward migration is expected to ease as the economy and labour market recover, with net migration projected to return toward long-run trends.