NZ economy sliding back into recession

The Kākā by Bernard Hickey

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NZ economy sliding back into recession

RBNZ's 'NowCast' measure shows economy fell back into contraction in June quarter as housing-market-with-bits-tacked-on fails to follow PM Luxon's 'growth, growth, growth' predictions

Bernard Hickey

Jul 07, 2025

There are clear signs from leading indicators that the economy is sliding back into recessionary territory in a third consecutive winter of economic discontent. Photo: Lynn Grieveson / The Kākā

Briefly in the news from Aotearoa’s political economy around housing, poverty and climate on Tuesday, July 8:

On the eve of an expected pause in rate cuts, the Reserve Bank’s new ‘NowCast’ real-time measure of economic activity shows GDP has fallen back into recessionary territory in the last three months. See more in The Lead and Chart of the Day below the paywall fold, and hear more in the podcast above.
PM Christopher Luxon and Finance Minister Nicola Willis said through the first six months of the year their Government and Budget 2025 was focused on ‘growth, growth, growth’, but the Crown Accounts for the 11 months to the end of May actually show the Government invested $6.4 billion less than last year and $3.6 billion less than forecast. See more in The Sidebar.
A South Island school’s survey students finds 78% didn’t want the new school lunch programme. See Number of the Day below.
Ministry officials tried desperately at the last minute to stop David Seymour’s lunch programme from going ahead because of Libelle/Compass’ poor record with past contracts. See more in my Picks & Mixes and Quote of the Day.
Today’s Must-Read is from Auckland Uni’s Tim Welch: NZ will soon have no real interisland rail-ferry link – why are we so bad at infrastructure planning? See more in my Picks ‘n’ Mixes below.
Today’s Good News story is news from Auckland Council, which has decided to turn a golf course into a wetland. Stuff, RNZ See more in my Picks & Mixes below.

There’s more detail and analysis for paying subscribers below the fold and in the podcast above. If we get over 100 likes I will open it up in full for public reading, listening and sharing.

The Lead: Economy sliding back into winter of recession

The Reserve Bank is widely expected to hold its cash rate at 3.25% tomorrow, despite most economists and the Government itself wanting the bank to cut again, and despite clear signs from leading indicators that the economy is sliding back into recessionary territory in a third consecutive winter of economic discontent.

The decision comes as even the Reserve Bank’s own new ‘NowCast’ indicator updated on Friday (see chart below) shows the economy contracted in the June quarter. Business surveys released in the last month from BusinessNZ, ANZ and NZIER all show businesses reporting activity fell in the June quarter, while consumer spending surveys also show an extension of a retail recession that has dragged on for more than three years.

So why hasn’t the economy continued on with the rebound seen in the March quarter? The Government portrayed the 0.8% rise in Q1 as the beginning of a recovery it has talked up since the start of the year. First, PM Christopher Luxon described 2025 as a year of ‘growth, growth, growth’ when he gave his State of the Nation address in January, and then Finance Minister Nicola Willis released her ‘no BS’ Budget for growth in May.

The problem is since then the Government itself has kept restricting construction investment in housing, hospitals and roads, as well pressing down on growth in operational spending.

The assumption was the housing market and business investment would step up to replace the Government as its sinking lid on spending growth pushed the size of Government down from over 34% of GDP to closer to 30% of GDP over the next couple of years. The trouble is that isn’t happening because households continue to experience cost of living stresses, driven partly by the Government-administered increases in electricity, rates and other prices, and continued job losses and wage repression. Reserve Bank lending restrictions are also stopping rental property investors from borrowing more to kick-start the housing market. Buyers and sellers are also in a stand-off over valuations, given banks are not forcing most sales.

Businesses are also reluctant to spend, given a lack of demand from consumers. The most positive part of the economy is agricultural exports rising to record highs, but farmers are choosing to repay debt, rather than invest it or spend it.

The Sidebar: Cashflow isn’t obeying ‘growth, growth, growth’

The Government’s own ‘Crown Accounts’ for the 11 months to the end of May show the Government has been tightening its investment and operational spending because its core aim is deficit reduction and reducing borrowing.

Page 10 shows the cashflows through the Governments accounts in the 11 months to the end of May for investing and operational activities was $3 billion less than forecast and $6.4 billion less than the same 11 months a year ago. That was largely due to investing cashflows being $3.6 billion less than expected.

Quote of the day: ‘We didn’t want it’

“It does raise serious questions about the reasons and decisions made behind the scenes to award this contract, which is further reinforced by Mr Seymour and the ministry not wishing to share this information publicly until forced to.” Murchison Area School principal Andy Ashworth quoted by Cate MacIntosh for The Press-$ this morning on the release of advice from the Ministry of Education recommending against the selection of Libelle and Compass to deliver school meals.

Number of the day: 78% say no

78% don’t want it - A recent survey of Murchison Area students and whānau, seen by The Press-$, found 78% did not want to continue with the school lunch scheme because they did not enjoy the food. Cate MacIntosh for The Press-$