Westpac chief economist Kelly Eckhold says the economy is at a turning point. Photo: Newshub
The economy is at a turning point after a bumpy 2024, but "storm clouds" are on the horizon as a global trade war threatens New Zealand.
Westpac New Zealand's latest economic outlook painted a brighter picture for 2025, with a stronger second half likely helping accelerate growth to 2.5 percent, followed by 3 percent in 2026.
Aiding growth would mean cheaper borrowing costs as the Reserve Bank reduced rates, and a strong primary sector.
Westpac expected another 1 percentage point cut in the official cash rate (OCR) in 2025 - reducing the benchmark interest rate to 3.25 percent.
"As is often the case at turning points, conditions are mixed. Positively, we see household spending growing again, strengthening tourism, and stabilising house prices," the bank's chief economist Kelly Eckhold said.
But he said the country was not out of the woods.
"A trade war has erupted as the new US president delivers his well-signalled policy agenda. There's much uncertainty on how this will play out, but it won't be good for New Zealand," Eckhold said.
"Looking ahead, our baseline view is for gradual recovery assuming trade uncertainties don't disturb either economic activity or our terms of trade too much. There are likely downside risks to this sanguine view."
However, a weaker New Zealand dollar would likely help shield New Zealand from the fallout, with exporters set to benefit.
"Dairy incomes look set to hit record highs in nominal and perhaps even real terms. The combination of lower interest rates and on-farm costs, a lower NZ dollar and high world prices is serendipitous for farmers," Eckhold said.
Westpac expected the housing market to strengthen over 2025, with prices to rise around 7 percent, followed by a 5 percent rise in 2026.
The bank said greater house building should prevent price growth running too far ahead of income growth.
Better times could also be ahead for jobseekers.
Westpac said after employment fell by more than 1 percent last year, recent data suggested the job market was stabilising.
It forecast unemployment to rise to 5.4 percent in the middle of the year from the current 5.1 percent, with slowing wage growth.
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