So why has the economy so persistently underperformed this year?

Mike Jones, chief economist at BNZ, said there were three key issues.

“Population growth was pretty meagre throughout the year, it ran about half the long-run average. If you’re not having more people coming in, moving around, spending, doing stuff, it makes it harder.

“The housing market did a whole bunch of not much through the year. If you look at the national house price numbers, that’s pretty flat for the year. It’s probably the third year in which things didn’t really move at all. That impacts people’s willingness to spend.

“The third one would be that cost of living pressures didn’t subside at all. They probably nudged up a bit through the year. We had some nasty increases in food prices in particular. All of those things have impacted spending appetites and abilities.”

He said the introduction of tariffs from the US had also had more impact than might have been expected.

“We knew it was coming but the announcement effect, shock impact and the confidence hit was probably a bit more than expected as well.”

He said things had shown signs of recovery in the middle of the year and then the tariffs impact helped to create an “air pocket”.

“It’s always difficult looking at the official GDP numbers because they told us that the second quarter in particular was very, very weak.

“But then we had some volatility and a big bounce back in the third quarter. So it’s difficult to get an accurate read, I think, on what’s been happening with the economy just from looking at those figures. In our view, you sort of smooth through it a bit and look at average growth, this year it was 0.3% a quarter, pretty underwhelming.”

Infometrics chief executive Brad Olsen said compared to the Reserve Bank’s survey of expectations at the end of last year, the biggest difference had been what happened with GDP.

“The economy just didn’t get moving at the same pace, it slowed down, particularly in the second quarter … looking at the survey of expectations at the end of 2024, expectations were for a 1.6% annual average GDP growth figure. We’ve only got figures until September but they highlight that year-end activity is down about half a percentage point. We’d be looking for a positive figure to start with, let alone trying to achieve something over 1%. We’re still in the deficit column.”

Expectations had also been for the official cash rate to be higher than it is, which Olsen said reflected that the Reserve Bank had had to push it down to get the economy moving. Inflation had also been lower than expected.

“The one that really gets me is the house price index, one year out it was expected to be 3% up [this year]. At the moment it’s not looking anywhere near there. I think actually that’s long-term encouraging because it means we’re not reliant on house price growth to pick the economy up.”

He said forecasting could be a humbling experience.

“The last couple of years it’s been quite hard to pick not only how the different parts of the economy move together but also the timing of it all. The delays and how quickly interest rate support and similar has influenced the economy and how households and businesses tie all the economic factors together.”

Olsen said part of the problem had been that people were worried about their jobs, even as home loan rates fell.

Both said they expected more from 2026.

“We’re seeing conditions move into place for a reasonable recovery next year,” Jones said. “All of that relates to the fact that the spending numbers we are seeing are looking better.

“There is all sorts of risks as there always are but we think we’re set for a much better 2026.”

Olsen said there were already signs of a pick-up.

“The survey of expectations for the end of this year says that forecasters are expecting unemployment to be about 5% in a year’s time, that time it takes for the labour market to fully shift and evolve. GDP growth is being upgraded to 2% or just over 2% in a year’s time.

“That’s probably a reflection not only of the lower cash rate but also mathematically it’s a bit easier to get growth out of an economic hole than to try to get growth out of an already growing economy.”

Carolyn Young, chief executive of Retail NZ, said the data could be affected by when in the week Christmas fell.

But she said it was disappointing that after a “solid” November, the data was not better.

“We were hoping that was the sign of that changing economy that we’ve been talking about for so long through all the Reserve Bank adjustments of the official cash rate … lower numbers mean consumers are not yet convinced they’ve got extra cash in their wallets to spend.”

– RNZ