Five reasons why this GDP result really matters

Friday, 19 September 2025

ANALYSIS: No one was expecting a great result, but the official report card of New Zealand’s economic results was worse than expected.

With growth of -0.9% between April and June, the economy continues to decline.

In the past year, it has shrunk by 1.1%.

These are just numbers, but they represent a serious problem. It’s a political issue for a coalition Government that was elected by promising it could “get the economy back on track”. And it’s a real life problem for every New Zealander who has bills to pay.

Here’s why this result, in particular, matters:

1. International trade is tricky, but its impact on NZ has been unusual

In June, Finance Minister Nicola Willis celebrated when New Zealand’s economic growth outpaced Australia. The economic results for the first quarter of this year showed 0.8% growth for New Zealand, but just 0.2% in Australia.

That was a great result, but all that work has now been undone.

Because while New Zealand recorded negative growth during the second quarter, Australia reported growth of 0.6%.

Countries with similar standards - Japan, Canada, the UK and the US - all reported better results than New Zealand as well.

Canada, which had been facing direct threats of specific sanctions from the US, did show economic decline - but only of 0.4%.

Willis blamed “international turmoil” thanks to US President Donald Trump’s “Liberation Day” tariffs for the 0.9% drop. But every country faced those tariffs, and in the case of Canada the tariff threat was greater.

So why did New Zealand perform significantly worse?

2. A crisis of confidence

Willis explained the New Zealand result by saying Trump’s tariffs had an “outsized” impact on local business confidence.

“There was a very big impact to the New Zealand psyche when the US tariffs were announced, people saw massive uncertainty, huge market volatility globally, a significant range of scenarios for how bad the downside implications could be for our small, isolated trading nation,” she said.

But she said the perception was worse than reality.

“My sense is that the tariff announcement had an outsized impact on New Zealand sentiment. It appears to me that Australian firms and households retained higher levels of confidence,” she said.

If the collective psyche is the issue, what happened to cause it to enter such a dark place?

Were we hypochondriacal about the US, which is not our most important trading partner? Or were other domestic issues dulling the vibe?

3. Productive industries fell further

One of the worst-hit industries was manufacturing, down 3.5% in the June quarter. It reported an annual fall of 1.9%.

Mining was down another 4.1% for the quarter, bringing its annual fall to 9.7% .

Construction’s deep decline fell even further, down 1.8% for the quarter. That brings the annual decline for construction to 9.4%.

Of the productive industries, only agriculture, forestry, and fishing showed signs of life. They were down 0.3% for the quarter, but had grown by 2% over the year.

The productive industries have been struggling.

Gas supplies are dwindling and the price of power is relatively high.

These results came out on the same day that more grim news emerged. This time from Nelson, where Proper Crisps joined a host of other companies in proposing to close their factories. Sealord was also planning to leave Nelson, following Carter Holt Harvey’s closure of its timber mill there.

News about factory and mill closures in regional New Zealand has become very common in recent years. When will the closures stop?

4. When will things get better?

Willis and David Seymour, who was filling in for Prime Minister Christopher Luxon when this news dropped, said signs were positive for the September quarter.

“If you look at the live GDP forecast, it’s actually at 0.7 for the quarter to date. That is a much more positive picture,” Seymour said.

“There’s some evidence of a bounce back,” Willis said. “We are now nearing the end of the third quarter and there are signs the economy is growing again.”

Ever since 2022, New Zealand’s economy has been hovering around stagnant growth.

In the December 2024 and March 2025 quarters, there was nominal quarterly growth with 0.4% and 0.9% quarterly results.

If this quarter does show 0.7% growth, that won’t be enough to signal any great recovery. It needs to be consistent. When will the recovery start?

5. And if things don’t get better, will the Government change tack?

Willis fronted on Thursday to outline her plan and thinking about these economic results. Luxon did not.

It was one of the toughest press conferences she has faced as finance minister.

At one point she was asked whether she still had Luxon’s confidence to lead the Government’s economic growth and finance portfolios.

“Yes, the prime minister has confidence in me. We are doing the right things,” she said. “I look at the period ahead of me, and I know we will make progress.”

Voters need to see that progress.

This week, the RNZ Reid Research poll showed more voters blamed the coalition Government for current economic issues, rather than the previous Labour government.

“What do we have to show for that,” Willis asked, referring to the previous government’s spending. “There had been no transformational change. A lot of that money, unfortunately, was frittered away. That is the habit of Labour-led governments.”

It is true, as Willis says, that this coalition Government must pay large interest bills for the billions borrowed during the Covid-19 pandemic. That limits what the Government can invest in today, and what interventions it can make to kick-start economic growth.

But it is also closer to next election than the last, and so polls show voters are looking to the future rather than the past. If conditions don’t improve soon enough, will the Government change its plan - or minister?