February 2025 Market Snapshot

The New Zealand economy is currently facing a period of ongoing weakness, marked by contracting growth, rising unemployment, and a subdued housing market. However, there are signs the worst is soon behind us, with falling interest rates aimed at revitalising economic activity and improving business confidence.

New Zealand gross domestic product contracted by 1.0% in the third quarter of 2024, following a 1.1% contraction in the second quarter. This result marks the country’s deepest recession since covid. Notably, one prominent economist estimated New Zealand’s economy suffered the biggest hit in the world in 2024.

The housing market also continues to languish. December data from the Real Estate Institute told a similar story to November – a mild increase in house prices but on fewer sales and longer days to sell. While the housing market should pick up this year in response to lower mortgage rates, challenges remain from moderating population growth, rising unemployment and poor affordability.

Adding to the economic concerns, the unemployment rate has climbed to 5.1% in the final quarter of 2024. This represents the highest unemployment rate since December 2016, excluding the covid period. All up, the data suggests there is plenty of spare capacity in the labour market that should ensure core inflation will soon be at the Reserve Bank of New Zealand’s (RBNZ) 2% target.

In light of this economic slowdown and with inflation broadly contained, the RBNZ has cut the Official Cash Rate (OCR) by a cumulative 1.75% since August 2024, bringing the OCR down to 3.75%.  The positive shift in monetary policy appears to be having its desired effect on business sentiment. The latest ANZ business survey reports that firms are optimistic for the way ahead, with firms’ employment and investment intentions remaining firmly positive.

The New Zealand share market also appears well positioned for 2025. Several supporting factors are in place: conservative earnings expectations with potential upside, anticipated OCR cuts enhancing the relative appeal of equities, and historically low investor positioning in New Zealand shares.

The geopolitical landscape has also been particularly volatile. Recently inaugurated US President, Donald Trump, has hit the ground running with aggressive trade policy, initially threatening 25% tariffs on Mexico and Canada, and an additional 10% tariff on Chinese goods. Subsequently, a deal was struck with the Mexican and Canadian leaders to delay the tariffs for one month. It is clear however that the self-titled ‘tariff man’ views the instrument as an important negotiating tool in the implementation of his ‘America First’ policy.

Globally, share markets had a solid start to the year, with most regions making strong gains in January. However, it hasn’t all been smooth sailing as recent events have added complexity to the outlook. The high-flying technology sector experienced a sharp drop when DeepSeek, a Chinese AI developer, released a groundbreaking open-source large language model that promises reduced energy and processing requirements. This development sent ripples through the market, causing shares of NVIDIA, a key player in AI hardware, to fall 17% in a single day. While it is becoming increasingly evident that artificial intelligence (AI) is driving the next technology revolution, it is important for investors to balance the lofty expectations embedded in valuations against a realistic path ahead.

Disclaimer: This article is solely for information purposes and is a summary based on selective information (which may not be complete for your purposes and does not take into account your individual circumstances). It’s not financial or other professional advice. Any statements as to future matters are inherently uncertain and are not guaranteed to be accurate or reliable. For help, please contact BNZ or your professional adviser.

Neither BNZ nor any person involved in this article accepts any liability for any loss or damage whatsoever which may directly or indirectly result from any opinion, information, representation or omission, whether negligent or otherwise contained in this article. Any opinions expressed in this article are the personal views of Ryan Gillanders are not necessarily shared by BNZ or anyone else.