You might have missed this story yesterday; the economy is still not in a good spot

Thursday, 21 August 2025

While Nicola Willis is promising things will get better, the current state of the economy is pretty challenged. The RBNZ’s highlighting weak demand, rising costs, rising inflation, a soft labour market, and difficult, costly global conditions.

Parts of yesterday’s Monetary Policy Statement from the Reserve Bank make for pretty sober economic reading.

There are numerous paragraphs with titles like 'Investment intentions remain weak”, “Global economic environment is increasingly difficult and costly to navigate', and “Businesses are facing rising costs”.

Dig into the details and it’s hardly the picture of an economic rebound.

“Businesses reported demand and activity remain weak, with continued weakness expected in non-primary sectors,” it says. “Costs for energy, council rates, imported materials, and transport were reported as increasing”.

“Labour market conditions remain soft. Some businesses have reduced staff numbers or hours and some others are planning to do so,” it states on page 9.

It’s not hard to find examples of businesses battling. This morning, Nelson’s Eves Valley sawmill announced it’s planning to shut, with the loss of 142 jobs. KiwiBank’s latest fiscals shows its profits are down 5%, and SkyCity - which runs three of the country’s casinos, and one in Australia - is feeling it too, with a whopping 42% drop in its profits.

It’s a contrast to how Finance Minister Nicola Wills interpreted the state of the economy from the Reserve Bank’s report. She was optimistic, claiming it shows the economy is about to turn a corner.

“Look at what all of the economists and the data are saying. It is objective data that says things are absolutely getting better, and you should feel confident about that,” was her message to Kiwis.

But “the data” is mainly forecasts. It’s what the analysts at the Reserve Bank predict will happen. They are not soothsayers and they don’t have a crystal ball.

Willis is right that there are positives in the report. One section on page 3 is titled “Economic growth in New Zealand is expected to recover gradually”. At first glance it seems positive, but it actually paints a bleak picture of the current economic reality.

“Employment and hours worked have declined and wage inflation has slowed sharply over the last year. Household dissaving [or dipping into savings] since the start of 2022 has reduced savings buffers,” the report says.

“At the same time, inflation in some essential expenditure components such as food, gas, electricity, and council rates has been much higher than the general rate of inflation,” it says.

What do you make of the economy? Let us know in the comments.

Those are some of the reasons - the Reserve Bank says - there’ll be a slower recovery in domestic spending than would otherwise be the case.

Then there’s economic growth in the most recent June quarter. It “may have stalled”, the report says. “We assume that GDP contracted by 0.3% in the June 2025 quarter”.

The size of the economy is currently 0.7% smaller than it was in mid-2024, it reveals on page 8.

Inflation will continue to cause a headache for the government - and the Reserve Bank too. In the September quarter, it is expected to hit 3%. That’s the very upper limit of the Bank’s core requirement to keep inflation within the 1-3% band.

How will that affect its next moves on the OCR? A cut will likely encourage more economic activity, which in turn could be inflationary and push the figure beyond 3%.

As for employment, there are a lot of people wanting jobs at the moment. “There is significant capacity in the New Zealand economy,” it states.

“Unemployment has increased, as have measures of labour underutilisation and firms are reporting that it is relatively easy to find labour,” it says on page 4.

While Willis is encouraging households to go out and spend, it’s probably because current household spending has been subdued.

“Weak household spending reflects previously restrictive interest rates, a weak labour market, subdued house price growth, and below-average population growth,” the report says.

Government spending is declining, and private investment is “expected to be subdued this year” as a result of high global uncertainty and the significant spare capacity in the economy.

Labour's Edmonds returns fire: 'Nicola Willis is a hypocrite'

After being called a ‘merchant of misery’ by Willis yesterday, Labour’s Barbara Edmonds is firing back, calling her a “hypocrite” who is “trying to distract from a failed economic growth plan”.

“You'd lash out if your plan is not going up speed and people are calling you out for it and holding you to account,” Edmonds says.

“Well, bring it. This is my job,” she says, firing up in an interview with Stuff.

Willis claimed Opposition MPs were unpatriotic because of their constant questioning of the Coalition Government’s track record on the economy:

“I'm always conscious that households listen to merchants of misery every day, most of whom sit on the Opposition benches who like to be doomsayers and talk down the New Zealand economy,” Willis told reporters yesterday.

Edmonds says Willis is obviously feeling the pressure.

“You want to be the Minister of Finance? Then handle the heat that comes from all the different kitchens across the country, because unfortunately, they can't even make mince now,” Edmonds says, referencing the high cost of a once cheap staple.

“I’m not just making things up. The numbers are bad and if she thinks it's made up, it’s just a distraction and disconnection she is getting from not being in touch with people,” says Edmonds.

As for Willis’ claim that all Labour does is talk down the New Zealand economy, Edmonds has dug out a quote from a press release Willis wrote on June 15, 2023 when in Opposition.

“While the government continued to make excuses, the data did not lie, showing New Zealand was in a worse shape than many other comparable countries which had faced similar challenges. But none of which face the toxic economic predicament we now find ourselves in,” Willis is quoted as saying at the time.

Edmonds says it’s now rich Willis is taking exception to the shoe being on the other foot.

“It sounds like a hypocrite to me,” Edmonds says.