August 2025 Market Snapshot

Following a stronger-than-expected start to the year, momentum in the New Zealand economy has slowed. Recent data paints a weaker picture, with the Reserve Bank’s GDP nowcast model indicating the economy contracted in the second quarter. This reversal stems from weakening business activity across both manufacturing and services sectors. The housing market remains soft, with prices stagnating and properties taking longer to sell.

The labour market reflects these broader economic headwinds. The unemployment rate ticked up to 5.2% in the June quarter, a move that was broadly in line with expectations. However, this was tempered by a drop in the participation rate to its lowest level in four years, suggesting some people are leaving the labour force entirely as job prospects become less attractive. Wage growth also cooled, with private sector labour costs rising just 2.2% over the past year. This combination of rising unemployment and slowing wage pressures indicates household spending may remain subdued into the second half of the year.

In response to these conditions and with inflation moderating, the Reserve Bank of New Zealand (RBNZ) reduced the official cash rate by 0.25% to 3% at its most recent meeting. Debate now centres on how low interest rates might ultimately fall. With the Government maintaining fiscal constraint, the burden may fall on the RBNZ to provide stimulus to the economy.

It’s not all bad news however, as New Zealand’s external sector continues to perform well. Primary exports such as meat, dairy and wine are generating historically high revenues, and the outlook remains relatively positive with China growing above their 5% official target.

The new US tariff regime represents the most significant shift in American trade policy in almost a century. The latest tiered structure of tariff rates reflects the US administration’s strategic view on trade imbalances. Countries running deficits with the US generally face a 10% tariff, those with modest surpluses are subject to around 15%, while those with large surpluses face steeper penalties. Whilst slightly lower than initially feared, the comprehensive tariff regime has raised average US rates from 2.5% to an estimated 18% since the start of the year.

New Zealand’s tariff rate on exports to the US has been set at 15% by virtue of having a small trade surplus. With annual exports to the US totalling $9.4 billion, a 15% fall in demand would equate to a $1.4 billion hit to the economy – unhelpful but not disastrous. There is, however, an additional risk for NZ exporters as they are facing a higher tariff than their Australian competitors.

Markets found some relief in the added policy clarity, even as concerns persist about the broader economic implications. The White House continues to argue the tariffs will bolster US manufacturing and job creation, alongside raising revenue for recently extended tax cuts, while critics highlight the risk of higher inflation and a slowing economy.

The US Federal Reserve (Fed) kept its policy rate steady at its July meeting for the fifth time in a row, holding the range at 4.25% to 4.5%. However, pressure is building for the Fed to move. The latest US labour market data showed just 73,000 jobs added in July, alongside a large downward revision to the previous months and a rise in the unemployment rate to 4.2%. Markets now place a strong chance of a September rate cut.

US corporate earnings have provided a bright spot amid the trade uncertainty. Around 80% of S&P 500 companies have beaten expectations, led by the technology sector. The Magnificent Seven tech giants posted a strong 17 % earnings growth, compared with 4% for the rest of the index. Investment in artificial intelligence infrastructure also continues at pace, with Microsoft, Amazon, Alphabet, and Meta spending a combined $95 billion in capital expenditure in the last quarter alone.

Investor sentiment has been buoyed by the better-than-expected earnings season and slightly reduced policy uncertainty. However, valuations remain elevated by historical standards. Global equities are now trading at around 20 times forward earnings, well above the long-term average of 16. A well-diversified investment approach remains essential, particularly in an environment where market leadership is narrow and valuations are stretched.

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 and are not necessarily shared by BNZ or anyone else.