September 17, 2025 • 10 mins
New Zealand's economy has been shrinking much faster than experts anticipated, according to new reports.
Latest data from Stats NZ shows GDP dropped 0.9 percent in the June quarter after two quarters of growth.
Infometrics Principal Economist Brad Olsen says the uncertainty around Trump's tariffs created a ripple effect that's showing through a number of industries.
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Speaker 1 (00:09):
You're listening to a podcast from News Talk Z'B follow
this and our wide range of podcasts now on iHeartRadio.
Speaker 2 (00:16):
New Zealand's economy suffered a sharper decline than anticipated, so
dropped zero point nine percent in the June corner. That
was almost twice the forecasted amount. Joining us now as
Brad Olson, chief executive and principal economists with Infometrics get
a brand good Afternoon.
Speaker 3 (00:32):
So how did we get this so wrong? How did
all the experts get the numbers? Basically was where we
were looking at zero negative zero point four and it's
coming in zero point negative of zero point nine.
Speaker 2 (00:45):
We knew it wasn't going to be a pretty number,
but you're right, we undercooked just how bad it has been.
And I think looking through the numbers, it's clear that
the impact of the tariff announcement in April really put
probably more of a shock than we we'd all first
expected through into the economy because it was some of
those areas that were influenced the most, the likes of
manufacturing down three point five percent. But when we looked
(01:06):
as well at some of the figures that highlighted it
was alongside manufacturing also just general capital investment came back
quite a bit, and I think that highlights it. Look,
if you're a business out there, you were thinking there
were better economic times at the start of this year.
Speaker 4 (01:19):
You were primed for things to become a little bit better.
Speaker 2 (01:22):
You were thinking of investing more, you know, putting in
some more planter equipment, trying to be a bit more efficient,
control your.
Speaker 4 (01:28):
Costs, get ready for that growth.
Speaker 2 (01:30):
The teriffs came through and just everyone immediately went, well,
there's no way I'm investing.
Speaker 4 (01:34):
I'm going to sit on my hands. I'm going to
hold back on on.
Speaker 2 (01:36):
Sort of making those big, big decisions. And really that
sort of showed through in a number of industries where
actually household spending increased in the quarter, but it was
that real drag back from business investment that held the
economy back and saw now the economy sitting one point
one percent smaller than where it was a year ago.
Speaker 3 (01:54):
So, you know, tariffs and such, but how much is
local pressures like energy costs coming into play in this number.
Speaker 2 (02:03):
I suspect it's sort of a culmination of everything. Right,
It's not anyone impact, but when you combine them all,
you know you're seeing businesses that are going well. I
don't know about the global trading environment because of tariffs.
I've got energy price shocks that are coming through. I've
got concerns about will there actually be purchases in the economy.
I think it's one of those things where when you
see all of those together, people just went, you know what,
(02:25):
I'm just I'm not making that call today. I'm just
going to sort of wait it out. What's interesting is
that one of the indicators that we often watch because
it gives us a bit more of a timely lead,
is the Performance of Manufacturing Index, the PMI that B
and Z and Business New Zealand bring out. And it
was interesting looking through that that the start of this
year you actually saw manufacturing activity that popped higher after
(02:46):
two years of declines. Hit the tariffs, things came back
pretty sharply. Through parts of May and June, July things
popped a little bit higher, and then in August they
fell back down to basically neutral. And I think that
shows that even at the moment, we're a little bit
worried and cautious about where economic activity sits right here
right now, because remembering that data we're talking about is
(03:07):
still sort of you know, near three months old. We
had been hoping and expecting that we'd come out of
that sort of tariff shock, you'd come through to September quarter,
there'd be a little bit more activity happening. But looking
through some of those figures, the growth just looks like
when it is coming through, if it's coming through, is
so patchy that again households and businesses just really reluctant
to invest. I note in the figures brand that household
(03:32):
consumption expenditure was up zero point four percent, and it
appears people are going out and buying things like TVs,
computers and other technical equipment. So in some ways, households
and most of us out there are kind of trying
to do our part with a bit more spending, But
there's other parts of the economy that aren't coming through.
That's absolutely true, and I think that's sort of realistic.
(03:52):
When you've got mortgage rates that have been pulling back,
people have got a bit more money and so there
is a little bit more spending, but again it's petchy
and it's not sort of wholesale enough for businesses to
be rehiring at the same degree. I mean, I think
from a household point of view, you continue to hear
a lot of people that are saying, yes, there's a
few purchases going on, but at the same time, you know,
(04:12):
people are worried about their jobs, so they're being a
little bit more restrained with the spending. Point four is
not bad, but it's certainly not rip roaring, and I
think that's sort of the challenge and the compromise at
the moment.
Speaker 4 (04:23):
What we're of course looking.
Speaker 2 (04:24):
For is the fact that you're going to have households
that continue to refix on to low mortgage rates through
the rest of this year. But will they and will
businesses when they start to get a bit more of
that money, are they going to spend and invest that
themselves or are they going to try and sort of
build up a bit more of a buffer because the
word of the year so far seems to be uncertainty.
No one knows exactly where things are going next, and
whether you're a business or a household, you're going when
(04:47):
is the right time to spend. I don't want to,
you know, sort of spend too much now and then
find myself in a pickle later on. So I think
that's almost the vibe that we're getting through same with
the likes of you know, construction activity was down one
point eight percent. Again people are going, is now the
right time to build a new house or to go on,
you know, build a new manufacturing site. Well, clearly there's
not as much activity out there.
Speaker 3 (05:07):
So does this all all this situation strength in the
case for a fifty point or more rates cut from
the Reserve Bank in October?
Speaker 2 (05:16):
It certainly raises the prospects absolutely, Adams Metrics. We're not
formally calling it yet, but we've start with put a
pretty big sticker warning on it and said, look, it
raises the chance substantially that the Reserve Bank thinks of
pulling that fifty basis point cut trigger. I've seen a
few other banks that have been outright saying look, no,
it needs to happen, and that you'd see potentially a
fifty basis point cut in October, and then you might
(05:39):
see another twenty five basis point cut in November. And
I think the big part of that one of the
challenges we've really been struggling with around what do you
do with interest rates is that often the impact doesn't
come through nearly as quickly as everyone might think. And
so we're trying to sort of play this awful time
and game of what's the economy going to be like
in the year's time and how do we sort of
support it. Then, with economic activity lower at the moment,
(06:00):
it means that sort of that just potential wind up
for economic activity is going to take so much longer,
which look does raise that I think the idea the worry,
and it's only a worry. I think people will be
going out there, will you know who cares about this
consum Let's just sort of get some economic activity firing.
Let's be clear, though, there is a bit of a
worry in the back of my mind if you start
to go with bigger interest rate cuts at the moment
(06:22):
you get twelve months into the future economic activity has
recovered a bit more. But jeez, if your pricing pressures
start to be showing through and you've got some pretty
big cost of living challenges, that's a real miss for
the Reserve Bank, who are trying to keep inflation stable.
So the court between a rock and a hard place,
needing to keep those inflationary pressures at bay, but clearly
needing to provide a bit more support for the economy.
(06:43):
It's a difficult mix.
Speaker 3 (06:45):
Now, construction was down, as you said, but what are
we seeing anything, any life going forward, any consent growth
or how are we looking in the next six to
twelve months.
Speaker 2 (06:57):
I think on the consent growth front, I mean there's
patches of it here and there. It really depends on
where you are in the country. Building consent numbers for
residential homes have leveled out a little bit more the
last couple of months around sort of thirty four thousand.
Again I think probably important for construction, remembering that we
were coming off like the highest number of consents in
half a century. So like when you comparison points Mount Everest,
(07:20):
it's always hard to sort of think that you're doing
too great, But thirty four thousand is not bad. The
area that I think probably shows a lot more promise,
and I think, to be honest, the government is hoping
shows a lot more promise is the infrastructure space. You
hear constantly from ministers that there's six billion dollars worth
of investment that's trying to get going by I think
Christmas is the timeframe they normally talk about. That's an
(07:42):
area where again we know we need better resourcing into
the likes of schools, hospitals, water pipes, transport projects. If
the government can get that going, then that does support
a whole lot more activity, and hopefully over time would
flow through into manufacturing. One of the challenges is that
manufactured goods are often things that go into other physical
items like buildings, and if you're not doing as much building,
(08:04):
then you don't need as many fixtures and fitting. So
we're hoping that again, over time you start to see
that activity, those economic activity numbers rev up. But we
really have started to think more now that the economic
recovery would show through stronger in twenty twenty six. We
keep holding out hope there's a bit more towards the
end of this year, but September quarter looks patchy for now.
I guess we're hoping for a bit of a brighter summer.
Speaker 3 (08:26):
So, because we're taking this to the phone, I weight
hundred eighty ten eighty, it's probably going to come down
to this, really, how much is this the previous government's
fault and as the current government doing enough to turn
this around, or how much is this just a little
player and a big stormy international ocean.
Speaker 4 (08:42):
I think it's all elements of that.
Speaker 2 (08:44):
I mean, I think clearly we overdid it, you know,
a couple of years back, when we were spending far
more money than we had and we got ourselves into
an unsustainable position. Current governments come in and had to
make some pretty tough choices around where to put their money.
But that has meant that there hasn't been as much
investment into certain areas, and the public sector has pulled
back and the private sector just hasn't had the money
to sort of push forward and fill the gaps. Internationally, yep,
(09:07):
there are a lot of challenges out there and a
lot of sort of questions around where we're heading. I
think effectively though, for the economy, we're trying to find
the new normal. What's the goldilock zone after some pretty
topsy turvy times. You don't want it to go back
to COVID lockdown. That was awful. You probably don't want
it to go back to twenty twenty two when the
economy was massively firing, but we then got the highest
inflation and a generation.
Speaker 4 (09:28):
You don't want it where it is at the moment.
You want it a little bit more in the middle.
And we're taking time to find that new Goldilock zone.
Speaker 3 (09:34):
So how far away is that? Can you see anything?
Is the recovery in sight? Do we just need to
hold on? It was survived to twenty twenty five, but
you know twenty twenty five is nearly gone. Is the
recovery coming? Is there is there a light at the
end of the tunnel?
Speaker 4 (09:50):
Oh? I still think there is.
Speaker 2 (09:51):
Again, households have got those line mortgage rates and similar
coming through the primary sector is providing. We now have
changed our tune a little bit, though we talk a
lot more about staying the mixed till twenty six.
Speaker 4 (10:02):
I guess that's cold comfort for everyone.
Speaker 2 (10:04):
I guess the point though, is that if we're sitting
out there and we're saying, look things and going to
get better, generally, you know, economic expectations do lead reality.
So I'm not willing to sit there as an economist
to say it's you know, we're all down in a
funk and it's never going to get better. But I
think we're realistic that it is taking a whole lot
longer than we hoped and expected. Yeah, yeah, Brad, always
really good to get your expertise and analysis. Thanks for
(10:26):
coming on, and we'll catch up again soon.
Speaker 4 (10:28):
Thank you, good one.
Speaker 2 (10:30):
Yeah you to. That is Brad Olson, the chief executive
and principal economist, didn't for met Trix.
Speaker 1 (10:34):
For more from News Talks d B, listen live on
air or online, and keep our shows with you wherever
you go with our podcasts on iHeartRadio
You're listening to a podcast from News Talk Z'B follow
this and our wide range of podcasts now on iHeartRadio.
Speaker 2 (00:16):
New Zealand's economy suffered a sharper decline than anticipated, so
dropped zero point nine percent in the June corner. That
was almost twice the forecasted amount. Joining us now as
Brad Olson, chief executive and principal economists with Infometrics get
a brand good Afternoon.
Speaker 3 (00:32):
So how did we get this so wrong? How did
all the experts get the numbers? Basically was where we
were looking at zero negative zero point four and it's
coming in zero point negative of zero point nine.
Speaker 2 (00:45):
We knew it wasn't going to be a pretty number,
but you're right, we undercooked just how bad it has been.
And I think looking through the numbers, it's clear that
the impact of the tariff announcement in April really put
probably more of a shock than we we'd all first
expected through into the economy because it was some of
those areas that were influenced the most, the likes of
manufacturing down three point five percent. But when we looked
(01:06):
as well at some of the figures that highlighted it
was alongside manufacturing also just general capital investment came back
quite a bit, and I think that highlights it. Look,
if you're a business out there, you were thinking there
were better economic times at the start of this year.
Speaker 4 (01:19):
You were primed for things to become a little bit better.
Speaker 2 (01:22):
You were thinking of investing more, you know, putting in
some more planter equipment, trying to be a bit more efficient,
control your.
Speaker 4 (01:28):
Costs, get ready for that growth.
Speaker 2 (01:30):
The teriffs came through and just everyone immediately went, well,
there's no way I'm investing.
Speaker 4 (01:34):
I'm going to sit on my hands. I'm going to
hold back on on.
Speaker 2 (01:36):
Sort of making those big, big decisions. And really that
sort of showed through in a number of industries where
actually household spending increased in the quarter, but it was
that real drag back from business investment that held the
economy back and saw now the economy sitting one point
one percent smaller than where it was a year ago.
Speaker 3 (01:54):
So, you know, tariffs and such, but how much is
local pressures like energy costs coming into play in this number.
Speaker 2 (02:03):
I suspect it's sort of a culmination of everything. Right,
It's not anyone impact, but when you combine them all,
you know you're seeing businesses that are going well. I
don't know about the global trading environment because of tariffs.
I've got energy price shocks that are coming through. I've
got concerns about will there actually be purchases in the economy.
I think it's one of those things where when you
see all of those together, people just went, you know what,
(02:25):
I'm just I'm not making that call today. I'm just
going to sort of wait it out. What's interesting is
that one of the indicators that we often watch because
it gives us a bit more of a timely lead,
is the Performance of Manufacturing Index, the PMI that B
and Z and Business New Zealand bring out. And it
was interesting looking through that that the start of this
year you actually saw manufacturing activity that popped higher after
(02:46):
two years of declines. Hit the tariffs, things came back
pretty sharply. Through parts of May and June, July things
popped a little bit higher, and then in August they
fell back down to basically neutral. And I think that
shows that even at the moment, we're a little bit
worried and cautious about where economic activity sits right here
right now, because remembering that data we're talking about is
(03:07):
still sort of you know, near three months old. We
had been hoping and expecting that we'd come out of
that sort of tariff shock, you'd come through to September quarter,
there'd be a little bit more activity happening. But looking
through some of those figures, the growth just looks like
when it is coming through, if it's coming through, is
so patchy that again households and businesses just really reluctant
to invest. I note in the figures brand that household
(03:32):
consumption expenditure was up zero point four percent, and it
appears people are going out and buying things like TVs,
computers and other technical equipment. So in some ways, households
and most of us out there are kind of trying
to do our part with a bit more spending, But
there's other parts of the economy that aren't coming through.
That's absolutely true, and I think that's sort of realistic.
(03:52):
When you've got mortgage rates that have been pulling back,
people have got a bit more money and so there
is a little bit more spending, but again it's petchy
and it's not sort of wholesale enough for businesses to
be rehiring at the same degree. I mean, I think
from a household point of view, you continue to hear
a lot of people that are saying, yes, there's a
few purchases going on, but at the same time, you know,
(04:12):
people are worried about their jobs, so they're being a
little bit more restrained with the spending. Point four is
not bad, but it's certainly not rip roaring, and I
think that's sort of the challenge and the compromise at
the moment.
Speaker 4 (04:23):
What we're of course looking.
Speaker 2 (04:24):
For is the fact that you're going to have households
that continue to refix on to low mortgage rates through
the rest of this year. But will they and will
businesses when they start to get a bit more of
that money, are they going to spend and invest that
themselves or are they going to try and sort of
build up a bit more of a buffer because the
word of the year so far seems to be uncertainty.
No one knows exactly where things are going next, and
whether you're a business or a household, you're going when
(04:47):
is the right time to spend. I don't want to,
you know, sort of spend too much now and then
find myself in a pickle later on. So I think
that's almost the vibe that we're getting through same with
the likes of you know, construction activity was down one
point eight percent. Again people are going, is now the
right time to build a new house or to go on,
you know, build a new manufacturing site. Well, clearly there's
not as much activity out there.
Speaker 3 (05:07):
So does this all all this situation strength in the
case for a fifty point or more rates cut from
the Reserve Bank in October?
Speaker 2 (05:16):
It certainly raises the prospects absolutely, Adams Metrics. We're not
formally calling it yet, but we've start with put a
pretty big sticker warning on it and said, look, it
raises the chance substantially that the Reserve Bank thinks of
pulling that fifty basis point cut trigger. I've seen a
few other banks that have been outright saying look, no,
it needs to happen, and that you'd see potentially a
fifty basis point cut in October, and then you might
(05:39):
see another twenty five basis point cut in November. And
I think the big part of that one of the
challenges we've really been struggling with around what do you
do with interest rates is that often the impact doesn't
come through nearly as quickly as everyone might think. And
so we're trying to sort of play this awful time
and game of what's the economy going to be like
in the year's time and how do we sort of
support it. Then, with economic activity lower at the moment,
(06:00):
it means that sort of that just potential wind up
for economic activity is going to take so much longer,
which look does raise that I think the idea the worry,
and it's only a worry. I think people will be
going out there, will you know who cares about this
consum Let's just sort of get some economic activity firing.
Let's be clear, though, there is a bit of a
worry in the back of my mind if you start
to go with bigger interest rate cuts at the moment
(06:22):
you get twelve months into the future economic activity has
recovered a bit more. But jeez, if your pricing pressures
start to be showing through and you've got some pretty
big cost of living challenges, that's a real miss for
the Reserve Bank, who are trying to keep inflation stable.
So the court between a rock and a hard place,
needing to keep those inflationary pressures at bay, but clearly
needing to provide a bit more support for the economy.
(06:43):
It's a difficult mix.
Speaker 3 (06:45):
Now, construction was down, as you said, but what are
we seeing anything, any life going forward, any consent growth
or how are we looking in the next six to
twelve months.
Speaker 2 (06:57):
I think on the consent growth front, I mean there's
patches of it here and there. It really depends on
where you are in the country. Building consent numbers for
residential homes have leveled out a little bit more the
last couple of months around sort of thirty four thousand.
Again I think probably important for construction, remembering that we
were coming off like the highest number of consents in
half a century. So like when you comparison points Mount Everest,
(07:20):
it's always hard to sort of think that you're doing
too great, But thirty four thousand is not bad. The
area that I think probably shows a lot more promise,
and I think, to be honest, the government is hoping
shows a lot more promise is the infrastructure space. You
hear constantly from ministers that there's six billion dollars worth
of investment that's trying to get going by I think
Christmas is the timeframe they normally talk about. That's an
(07:42):
area where again we know we need better resourcing into
the likes of schools, hospitals, water pipes, transport projects. If
the government can get that going, then that does support
a whole lot more activity, and hopefully over time would
flow through into manufacturing. One of the challenges is that
manufactured goods are often things that go into other physical
items like buildings, and if you're not doing as much building,
(08:04):
then you don't need as many fixtures and fitting. So
we're hoping that again, over time you start to see
that activity, those economic activity numbers rev up. But we
really have started to think more now that the economic
recovery would show through stronger in twenty twenty six. We
keep holding out hope there's a bit more towards the
end of this year, but September quarter looks patchy for now.
I guess we're hoping for a bit of a brighter summer.
Speaker 3 (08:26):
So, because we're taking this to the phone, I weight
hundred eighty ten eighty, it's probably going to come down
to this, really, how much is this the previous government's
fault and as the current government doing enough to turn
this around, or how much is this just a little
player and a big stormy international ocean.
Speaker 4 (08:42):
I think it's all elements of that.
Speaker 2 (08:44):
I mean, I think clearly we overdid it, you know,
a couple of years back, when we were spending far
more money than we had and we got ourselves into
an unsustainable position. Current governments come in and had to
make some pretty tough choices around where to put their money.
But that has meant that there hasn't been as much
investment into certain areas, and the public sector has pulled
back and the private sector just hasn't had the money
to sort of push forward and fill the gaps. Internationally, yep,
(09:07):
there are a lot of challenges out there and a
lot of sort of questions around where we're heading. I
think effectively though, for the economy, we're trying to find
the new normal. What's the goldilock zone after some pretty
topsy turvy times. You don't want it to go back
to COVID lockdown. That was awful. You probably don't want
it to go back to twenty twenty two when the
economy was massively firing, but we then got the highest
inflation and a generation.
Speaker 4 (09:28):
You don't want it where it is at the moment.
You want it a little bit more in the middle.
And we're taking time to find that new Goldilock zone.
Speaker 3 (09:34):
So how far away is that? Can you see anything?
Is the recovery in sight? Do we just need to
hold on? It was survived to twenty twenty five, but
you know twenty twenty five is nearly gone. Is the
recovery coming? Is there is there a light at the
end of the tunnel?
Speaker 4 (09:50):
Oh? I still think there is.
Speaker 2 (09:51):
Again, households have got those line mortgage rates and similar
coming through the primary sector is providing. We now have
changed our tune a little bit, though we talk a
lot more about staying the mixed till twenty six.
Speaker 4 (10:02):
I guess that's cold comfort for everyone.
Speaker 2 (10:04):
I guess the point though, is that if we're sitting
out there and we're saying, look things and going to
get better, generally, you know, economic expectations do lead reality.
So I'm not willing to sit there as an economist
to say it's you know, we're all down in a
funk and it's never going to get better. But I
think we're realistic that it is taking a whole lot
longer than we hoped and expected. Yeah, yeah, Brad, always
really good to get your expertise and analysis. Thanks for
(10:26):
coming on, and we'll catch up again soon.
Speaker 4 (10:28):
Thank you, good one.
Speaker 2 (10:30):
Yeah you to. That is Brad Olson, the chief executive
and principal economist, didn't for met Trix.
Speaker 1 (10:34):
For more from News Talks d B, listen live on
air or online, and keep our shows with you wherever
you go with our podcasts on iHeartRadio
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