NZ economy sliding into wintry deep freeze

The Kākā by Bernard Hickey

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NZ economy sliding into wintry deep freeze

NZ Steel surprised at Govt investment freezes; Car sales slump; Housing market stalls

Bernard Hickey

May 05, 2025

170

Transcript

Willis and Luxon began the year trumpeting their plan to “go for growth”, but when the Government doesn’t invest, the private sector doesn’t either. Photo: Getty Images

Briefly, in Aotearoa-NZ’s political economy around housing, poverty and climate on Tuesday, May 6:

Growth in our housing-market-with-bits-tacked-on of an economy is stalling and sliding back into a deep freeze as the winter months approach, despite 200 basis points of rate cuts and pledges from PM Christopher Luxon to ‘go for growth.’ (See more in feature article below)
The Government’s ever-tighter spending policies and its investment freeze since early 2024 are combining with fears about the global economy to depress construction sector activity, housing market activity, retail sales and business investment. (See more in feature article below)
NZ Steel’s CEO Mark Malpass says1 he’s surprised the Government has not stepped up with extra infrastructure investment to soften the effects of last year’s recession. (See more in feature article below)
Real estate agents report this month that the housing market upturn seen since the Reserve Bank started cutting rates has stalled in recent weeks, with growing Fear Of Over Paying (FOOP) holding buyers back from clearing ample unsold houses on the market. (See more in feature article below)
The Motor Industry Association reports new and used car sales in the first four months of 2025 of just 70,227, down 37.4% from 112,129 in 2022, down 15% from 82,599 in 2023 and down 13.2% from 80,970 in when interest rates were 200 basis points higher 2024.
Oranga Tamariki has detailed a 60% increase in reports of concern about children it monitored in the quarter to 27,170, vs the same quarter a year ago, citing “social and economic factors such as an increase in cost of living, an increase in the number of children living in material hardship, and an increase in the unemployment rate.” (See more in Journal of Record below.)

(There is more detail, analysis and links to documents below the paywall fold and in the podcast above for paying subscribers.)

Economic growth sliding into wintry deep freeze

PM Christopher Luxon and Finance Minister Nicola Willis began the year with a much-announced refocus on ‘Going for Growth,’ saying ‘nothing was off the table2’ in their quest to invigorate GDP growth. They said the Government’s strategy was to prioritise ‘making the boat go faster’ with lower interest rates and using fast-track approvals and RMA and Three Waters reforms to unleash growth.

As recently as last week, Willis previewed her Budget 2025 on May 22 as a ‘Growth Budget’3. The trouble is her speech detailed another tightening of spending policies in response to the global tariff shock, and a clear aim to crunch the size of Government down by four percentage points of GDP ($16 billion a year) in order to win yet more interest rate cuts. Her $1.1 billion a year cut in the Government’s operating allowance for each of the next four years (at least) will actually reduce GDP by around $550 million, even after the 5-10 basis points of lower interest rates the cuts are designed to buy.

The problem for the Government is that its strategy of cutting the size of Government and Government debt to ‘free up’ space for the private sector to step forward and take advantage of lower interest rates to invest isn’t working. Businesses are not investing because of uncertainty about the global economy and surprise at the Government cancelling anchor public infrastructure investments that are often the catalyst for private sector activity. When the Government doesn’t invest, neither does the private sector.

‘We were hoping we would see some investment’

NZ Steel CEO Mark Malpass was clearly frustrated in an interview with Roeland van den Bergh published yesterday on The Post-$’s website, but strangely absent from the newspaper itself. Here’s Malpass’ comments (bolding mine):

“We were hoping, with the National Coalition coming in, that 18 months ago, we would have started seeing some investment”, Mark Malpass told The Post.
“Typically governments, when you're in recessionary environment, invest in infrastructure and social housing. And we've just seen the opposite, really ... they've killed off things like Dunedin Hospital, the ferries and light rail.”
Those were the projects that would have create momentum in the economy and kept people and jobs, he said: “It's been surprising to see them killed off.”
The Government’s fast track approvals regime for a range of infrastructure, housing and development had also failed to deliver projects thus far. The industry is really waiting for that to happen,” he said.
Uncertainty had been created domestically by the cancelled projects, but also spending cuts, and internationally by things like the war in Ukraine, tension in the South China Sea, conflict in Israel and the election of Donald Trump.
“Those things all coupled together do mean that growth is quite sluggish in the construction and manufacturing sectors in New Zealand at the moment,” Malpass said. “But you can see a day where things will start to improve.” Malpass via Roeland van den Bergh for The Post-$: Steel & Tube boss frustrated over number of cancelled infrastructure projects

Car sales keep falling, despite the rate cuts

The Motor Industry Association reported yesterday that new and used car sales were down again in April, extending the falls seen since a boom in 2022, linked partly to subsidies for new and used electric and hybrid vehicles.

New and used car sales in the first four months of 2025 of just 70,227, down 37.4% from 112,129 in 2022, down 15% from 82,599 in 2023 and down 13.2% from 80,970 in when interest rates were 200 basis points higher 2024.

“This is likely due to continuing tight economic conditions impacting on spending behaviour.” MIA CEO Aimee Wiley said.

The housing market that our economy is tacked on to is stalling too

Tony Alexander reported yesterday from his monthly survey of 256 real estate agents for NZ Home Loans in early May that: “The Housing Market Upturn Stalls.” Here’s his key comments and the charts from his report (bolding mine):

“Amidst new uncertainties about the world economy and plentiful evidence of high numbers of properties for sale, buyers have stepped back from the market, feeling strongly that time and negotiating power are both on their side.
“FOMO has returned to levels before monetary policy began easing and on average agents feel house prices are falling around the country.
“There are now more agents seeing declining numbers attending Open Homes and auctions than report they are seeing more people.” Tony Alexander’s report.

“A net 23% of agents report this month that they feel prices are declining in their areas. Many agents noted that buyers increasingly offer only heavily discounted prices, have little interest in properties requiring work, and walk away quickly if vendors prove recalcitrant. A month ago, a net 3% of agents felt prices were falling and this latest reading suggests that the various monthly gauges of price movements will soon report at least an absence of prices rising and maybe some declines underway.” Tony Alexander in his NZHL report.

So why aren’t lower interest rates unleashing a stronger recovery?

In my view, the Government’s strategy of relying on a surge of private investment by households and businesses as interest rates fall, which worked from 1994-2000, 2002-07, 2010-16 and 2020-21, but it can’t do that so easily this time because household debt is high, the Reserve Bank is restricting bank loan growth with higher capital requirements and LVR and DTI restrictions, and the private sector doesn’t borrow to invest anymore. That’s because banks now focus wholly on growing mortgages, rather than business loans (not linked to land) and farming loans.4

The Government’s main hope of unleashing very strong mortgage lending growth to break the stalemate in the housing market and restart economic growth more broadly is to hope or encourage the Reserve Bank to loosen capital rules, DTIs and LVRs.

That may happen, now a new Reserve Bank Governor is in place, but it won’t happen quick enough to fire up growth again during another winter of economic discontent.

Climate, water, land, air & biodiversity news

Good climate adaptation news by Sinead Gill for The Press-$: 'Brilliant job': New council infrastructure spares flood-prone community grief.
Climate & biodiversity Op-Ed by Vic Uni’s Paul Callister & Massey Uni’s Robert McLachlanfor Newsroom: Gas-guzzling tourists are loving our whales to death
Pest-free news by Kate Green for RNZ: New goals for Predator Free strategy among proposed DOC changes
Climate, forestry & farming news by Gianina Schwanecke for RNZ: New rules to limit farm to forestry conversions - but does loophole remain?

Today’s stack of stacks

Public debt analysis by Susan St John: Same old story—let’s frighten the horses with the bogey of net debt
Geopolitics comment by Jason Hickel: Why capitalism is fundamentally undemocratic
Bob Jones and performative rebellion by Jesse Mulligan: Rebel Yell
Matt Pearce: Journalism’s super-spenders and the new subscription economy

The Kākā’s Journal of Record for Tuesday, May 6

Oranga Tamariki published its December quarter performance report, showing a 60% increase in reports of concern about children it monitored in the quarter to 27,170 vs the same quarter a year ago. The key bit (bolding mine:

“Our early findings suggest much of the increase occurred relatively evenly across demographic groups, locations, and notifier types, and cannot be explained by a single event or change. Two underlying themes are likely to have had an impact: public awareness and reporting, and social and economic factors such as an increase in cost of living, increase in the number of children living in material hardship, increase in the unemployment rate.” Oranga Tamariki December quarter performance report.

Quote of the day: A ‘tsunami of need’

“We're just not funded at the scale needed to respond to the tsunami of need we are facing.” Tia Ashby, who heads Te Hau Ora o Ngāpuhi, a Kaikohe-based iwi organisation that provides housing, health services and programmes like Paiheretia, which helps men caught up in the Corrections system via Peter de Graaf for RNZ: Northland's meth crisis: 'There's no magic wand' plus 'We see it in our town every day' - inside the ongoing battle against meth use in Northland

Number of the day: $430,000 per investigator

$430,000 - The amount recovered per investigator each year by specialised auditors and fraud investigators at Health NZ-Te Whatu Ora, of whom 23 or 28% of are being made redundant. Further reading via RNZ: Calls for probe into cuts to anti-fraud roles

Cartoon: Great new kit. No people

Ka kite ano. Bernard

Politics & economy news by Roeland van den Bergh for The Post-$: Steel & Tube boss frustrated over number of cancelled infrastructure projects.

Except tax increases, new Kāinga Ora housebuilding, early starts to Hospital builds, Government stimulus to supplement, local transport spending, capital grants to unleash council investments in water infrastructure, reversals of fee increases for driver’s licenses, road-user-charges, new passports, biosecurity fees and tourism levies.

Nicola Willis speech last week.

Lending to real businesses and farmers not secured by residential property has fallen by $10.8 billion to $90.3 billion since 2020, while loans backed by residential land to those owning homes has risen by $110 billion to $461 billion, Reserve Bank figures show