In a nutshell:
- Global uncertainty continues, with the US midterm on the Middle East conflict still to be determined—in the meantime, higher fuel and shipping costs continue to add to economic pressures.
- New Zealand's still operating as a country of two halves. Agriculture, exports and tourism are performing well, but the services sector is still struggling, with little in the way of job creation.
- The election brings another layer of uncertainty—whoever comes in, rebuilding business confidence and encouraging investment and job creation needs to be a priority.
- The Reserve Bank held the OCR at 2.75% in October, despite widespread expectations of a hike. Further increases are still likely, but with inflation stubbornly high and unemployment rising, the path ahead is far from straightforward.
- House prices are still flat or falling across much of New Zealand, with buyers firmly in the driver's seat. Auckland's looking particularly attractive, with an oversupply of townhouses creating some exceptional buying opportunities.
Between the US midterms, our own general election, and the Reserve Bank’s latest Official Cash Rate announcement, there’s a whole lot to unpack in this update.
Here’s the latest on what’s been happening with the New Zealand economy, housing market, interest rates—and how the global situation is playing into things.
Let’s get into it.
First up, what's been happening overseas?
The first lot of big news over the last few weeks has come out of American politics.
Whatever your thoughts on Trump, you can’t deny he’s made geopolitics a lot more interesting. I don’t think I've ever seen Kiwis so glued to their screens, invested in the outcome of the US midterms.
The Republicans took a beating—and it's going to be interesting to see how things play out from here in terms of the impact on the war in Iran.
At first, the sense was that Trump would probably double down as a way of trying to save his reputation. But with his party backtracking on the conflict as much as they have, he’s now in a position where there’s not much he can do.
The regime will have taken a lot of positives from the fact that, whilst Trump may have won the conventional war, they've won the strategic one. How that plays out over the next month or so is anyone’s guess at this stage, but in the meantime, the rest of the world’s paying the cost.
The longer this goes on, the more it highlights just how hard it is to get oil out of the Middle East—and how exposed the world is to that risk.
The challenge is that it's not just about the Strait of Hormuz anymore—it’s also the Bab el-Mandeb that’s now being impacted, causing carnage from a global shipping perspective.
The long-term positive will be a diversification away from oil, which was already happening, and away from those chokepoints. But in the short-term, we're still in for a period of instability and high fuel prices, which of course flows through to the economy.
It’s already having an impact here, of course.
The big Downtown Carpark redevelopment planned for Auckland has been paused, I’d say mostly as a result of cost pressures ruining the feasibility of the project. With high oil prices and shipping costs, bringing building materials in from overseas is super expensive, so they've assessed it and decided (for now) the risks are too high.
That said, we’ve still got plenty of other infrastructure projects ready to go.
How's the New Zealand economy going?
It really is a country of two halves at the moment.
The agri sector's doing really well. A low New Zealand dollar is great for exports— produce, meat and dairy—although it makes stuff coming into the country more expensive. It's also great for tourists.
But we’re not a manufacturing economy (we don’t have the scale) and agri doesn't employ that many people. Most of us work in the services sector, which is still limping along without much in the way of job creation. Until that picks up, the economy's not really going to take off.
What that means is that we’ve got the North Island (which is heavily reliant on tertiary job creation) still bubbling along in this weird near-recessionary environment—but go down to the South Island and it doesn't feel like a recession at all.
What could the general election mean for the economy?
The election result’s still up in the air at this stage, while we wait for all the special votes to be counted—but what we do know is that we’re going to get some form of coalition.
If past experience is anything to go by, it’ll be a good month at least before we’ve got clarity on what that looks like. In the meantime, everyone will be sitting on their hands, waiting to see what might be in store for next year.
Regardless of who comes in, they’ve got a big job on their hands.
We've been in a recession for three or four years. There’s not a lot of money to go around. Although we’ve made good progress in some respects, we haven’t managed to create an environment that's really attractive for business and investors—and that needs to be the focus moving forward.
The fact is that job creation comes from business confidence.
We have this idea in New Zealand that jobs just fall out of trees.
But as jobs have moved away from agriculture and manufacturing, they aren't on the land anymore—and broadly they're not in the factory either. Jobs are in the tertiary and service sectors, and that relies on business people making investments, taking risks and putting it all on the line to do something.
It doesn't matter if you're left or right—business is really important to the health of the economy. Without business, there aren't jobs; and without jobs, there's no tax take.
The only way we can improve the living standards of New Zealanders is through job creation.
Part of the problem is the that we have such short election terms. Governments continually coming in and throwing out their predecessors work doesn’t create the sort of stability you need for anyone trying to make investment decisions. You've got to send really clear signals to investors and business about the rules of the road.
The other part of it is the black and white thinking that seems to have taken hold around certain industries, and whether they have any role to play in the future of New Zealand’s economy.
It’s a controversial one, but take oil, mining and gas, for example. I’m not saying it should be open slather—but we need to be having conversations about where we’re prepared to make trade-offs, take risks, for the good of our economy.
What's happening with the OCR?
The Reserve Bank held the OCR at 2.75% at the end of October—despite markets pricing in a better than 90% chance of a hike, and most economists talking one up.
I think it was the right call, and it’s been validated by our latest unemployment data (out just last week) coming in higher than forecast at 5.7%.
The economy’s still just not strong enough to weather higher interest rates—and the RBNZ wants to let the impact of previous hikes flow through before making any further calls.
It was a close decision, though, with the Monetary Policy Committee vote split 4–3.
That’s because inflation, while down from 4.1% in June is still sitting above the RBNZ's 1–3% target range at 3.7%—a lot of which is coming from petrol prices and costs like council rates and electricity.
The risk from here is that higher fuel costs continue to pass through to prices, creating more cause for concern, and the RBNZ starts pushing up interest rates at a time when the economy's not strong.
Further hikes still seem likely, but there are a lot of unknown factors playing out at the moment, which could force the RBNZ’s hand either way.
We’ve got one more Monetary Policy Statement to come for the year in mid-December, so we’ll know more about the future of interest rates then.
Finally, how are things going across New Zealand’s property market?
Nationally, the market's still soft.
According to Cotality data, values fell another 0.4% in October—the seventh consecutive monthly drop—now sitting 2.3% lower than a year ago. The national median value is just under $791,000, its lowest point since December 2020 and around 19% below the January 2022 peak.
It's that same ‘country of two halves’ story. Queenstown and Invercargill are the only main centres where values are higher than a year ago, while Hamilton, Tauranga and Christchurch were flat in October. Wellington's still weak, with restrained public sector spending and a shrinking population weighing on it.
With plenty of unsold stock on the market heading into spring, the balance of power sits with buyers—especially those who feel secure in their jobs.
Auckland's still where I think the best opportunity is.
We've had a massive increase in townhouse building, while the population's remained flat at best.
That oversupply is really holding prices down, to the point where a lot of good-quality townhouses are actually selling below their cost to build.
It means no one's going to build another one like it at the same price, so you’re getting insane value for money.
Everyone sits there wondering when it’ll be the right time to buy, wanting to catch the market at the bottom—and, to be honest, I kind of feel like we're there.
About the author: John Bolton (JB), Squirrel Founder & Group Head of Property Finance