South Island leads economic recovery, Kiwibank report finds

Saturday, 26 July 2025

Kiwibank chief economist Jarrod Kerr recently spoke to a crowd of 250 people in Christchurch, and asked them if they were employing more people or buying machinery and other discretionary purchases.

As many as 40% raised their hands.

The same question was posed to an audience of 200 people in Wellington sometime afterwards, and just two people raised their hands.

For Kerr, this neatly illustrates the trend found in Kiwibank’s latest Annual Regional Note, out today, that breaks down economic conditions across the country’s regions. It finds, in a nutshell, that the further south in New Zealand you go, the more vibrant the economy is - and the more confident the citizens are.

Of course, Christchurch is not the most southern region. But Kiwibank’s findings still hold true. Economically, the best performing regions in the country are Southland and Otago, both scoring 5 out of 10 when considering indicators such as population growth, retail sales, employment, house price index, house sales, building consents, international tourism and electronic card transactions.

Scores out of 10 are higher across the country, with the national average score lifting from 3 to 4 out of 10. Christchurch scored a 4, alongside Manawatū-Wanganui and Auckland - but Wellington scored a 3 alongside much of the rest of the North Island, and Northland, Taranaki and Gisborne, even while scoring a 3, went backwards in the detail of their economic data.

While common sense might suggest a lot of that southern buoyancy is down to primary sector exports going gangbusters, Kerr says that in fact it is tourism that is driving the boom, particularly in Otago.

“There's no doubt that they're more upbeat because tourism has continued to lift,” he told The Post, noting the bounce after Covid brought national tourism levels up to 70% of pre-Covid levels, followed by a hard grind to 90% of pre-Covid levels currently.

“A big part of the Otago stories is that bounce in tourists and tourism. We had the Aussies come straight back, and American numbers were pretty strong as well, and the missing piece of the puzzle has been the Chinese, and they are returning now.”

The recovery in tourism is supporting regional employment, particularly in Otago, which recorded an 8% increase in hiring while almost everywhere else saw a drop.

Optimistic Christchurch

Canterbury’s score improved 0.3 points, staying at 4 out of 10, with the post-earthquake rebuild continuing to underpin activity. The region’s housing market also continues to outperform the country, but not bombastically - Canterbury house prices are up 1.5% from last year, compared to the national average of a 0.3% decline.

Christchurch has also benefited from returning tourism, but it is also “built back better” says Kerr, who says the city exemplifies how fixing and building new infrastructure helps buoy economic and overall confidence.

“Their housing market didn't really take off as much post-Covid, and it didn’t decline as much post-Covid, as elsewhere; their house prices are kind of close to where they were not so long ago,” he says.

“It’s a good example of how that impacts people’s mental wellbeing. If you’re in a cool city which has been rebuilt really well, and you have an affordable house that hasn’t hugely declined in value, you are simply more optimistic.”

That doesn’t mean there’s an orgy of spending going on in Christchurch however. The report notes growth in retail sales in Christchurch is tracking closely to the national average of 1.5%.

“Like many other households and businesses, crawling out of a recession means rebuilding equity. That’s step 1. Once balance sheets are in better shape, there’s reason to spend,” the report says.

“And once demand in the economy strengthens, there’s reason to invest. We’re not quite there yet.”

Fair to middling areas

The Kiwibank report crowns the Manawatū-Wanganui region “most improved”, with its score rising almost two points off the back of strong employment growth. However, adjacent Taranaki has had the deepest decline in employment across all regions, down 8%, despite an economy largely centred around dairy farming and agricultural manufacturing.

Gisborne dropped to a 3 out of 10 in the year - the only region to record no growth in house sales in the three months to May compared to a year ago, while Northland has seen very soft activity with new dwelling consents seeing double digit declines.

Auckland’s activity was weak, although its population continues to grow, driving its score to 4 out of 10, while Wellington gains a score of 3, better than last year’s 2, but off the back of only modest employment and retail growth.

Kiwibank commercial growth manager Ryan Davison says Auckland’s business climate is showing a mixed bag of results.

“Many of those who'd been banking on lower rates as their ticket out of trouble have found the relief hasn't translated into the turnaround they'd hoped for,” he said.

While reduced borrowing costs had eased debt servicing pressures, several factors were holding back recovery - less household spending, and struggling businesses remain under-capitalised despite falling interest costs being among them.

“With property values still flat, those relying on property equity to access capital for reinvestment into the business are finding themselves stuck,” he says.

“Although there are some encouraging signs emerging, the general feeling amongst business owners is that this downturn is dragging on much longer than anyone expected, creating ongoing uncertainty around investment and business decisions.”

Most of those feeding into the survey about business sentiment said they expected Auckland’s improvement to be optimistically, a year away, and more realistically, within the next two years.

Overall picture

While the south is showing the most obvious signs of optimism after last year’s recession, Kerr admits even garnering the best score of 5 out of 10 hardly equates to boom times.

“It’s not great,” Kerr says of the scores of between 3-5 in each region. “I mean, it's better than where we were last year. So we're taking this as being a step in the right direction. But … it was a serious recession last year, it was really bad.

“The fact that we've kind of come out of it a little bit more optimistic is a good sign, but to me, it really points to the fact that we are still crawling out of this recession, rather than regaining our footing and accelerating out.”

Kerr repeats a common Kiwibank refrain - that interest rates need to drop harder and faster to do things like stimulate the housing market to beget overall confidence.

Sentiment is currently going in the other direction. Banks across the board have revised down their house price increase forecasts: ANZ says it expects prices to rise by 2.5% over 2025; BNZ says 2%, the RBNZ says 4.5% and Kiwibank now says 2-3%.

National house prices up just 1.8% after stabilising in 2023, and since the RBNZ’s started cutting rates in August, house prices have lifted by just half a percent.

“That’s not a market in recovery. It’s a market that is failing to find its footing,” the Kiwibank economist says.

Some might say a moribund housing market makes housing more affordable to those that need it, but the types of houses being sold are not in the affordable end of the market. There is more housing on the market being sold, but in a price bracket which has fewer takers. Paradoxically this is having the effect of putting downward pressure on rents, as houses that aren’t sold are being rented instead.

“But if we look at the the entire housing stock, there's a shortage. Our population is simply outgrowing the the supply of of homes being built and that is one of the key problems with the housing market and why it's unaffordable - because we haven't supplied enough affordable homes to start with,” says Kerr.

“We're really good at building a $3 million house, but we are hopeless at building a $500,000 to $700,000 house.”