Chapter 1
Economic Outlook
CBRE New Zealand Real Estate Market Outlook 2025
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Economic Outlook
The latest surveys of New Zealand business and consumer sentiment indicate that more accommodative interest rates are setting up the framework for a rebound in economic activity.
Consumers will drive the initial rebound. Capital spending, including investments in productive capacity such as business space, will most likely not lift materially until 2026 once current excess capacity is absorbed, and the recovery is well entrenched.
CPI to remain modest despite re-emergence of tradable inflationary pressures
The RBNZ’s February Monetary Policy Statement struck a dovish note with the central bank being comfortable with its view that inflationary pressures are modest overall and allow further interest rate cuts through the rest of 2025.
Tradeable inflation will rise somewhat due to global factors such as higher oil prices and a lower NZD exchange rate. However, this will be offset by dissipating non-tradeable inflation. Non tradable inflation is expected to fall further given the high degree of spare capacity in the economy, especially within the labour market which will likely remain weak through 2025.
Tradeable inflation will rise somewhat due to global factors such as higher oil prices and a lower NZD exchange rate. However, this will be offset by dissipating non-tradeable inflation. Non tradable inflation is expected to fall further given the high degree of spare capacity in the economy, especially within the labour market which will likely remain weak through 2025.
Market pricing indicates 125 bps cash rate fall in 2025 to 3.0%
Most of the fall will be front loaded with the Official Cash Rate forecast to decline by 75-100 bps in the first half of the year across four monetary policy reviews from 19th February through to the 9th of July.
Wholesale rates have dropped well ahead of the OCR. This means limited further declines from current levels and while two-year swap rates may fall further, they are near their cyclical trough around the low to mid 3.0% range. Bond rates will be impacted more by the global market, particularly the U.S. where markets have moved to anticipate fewer and more gradual Fed cuts.
Focus is starting to also shift towards the other side of the interest rate cycle with expectations that both short and long dated rates may start lifting at some stage in 2026. Mid-2025 to mid-2026 may prove to be the bottom of the interest rate cycle.
Wholesale rates have dropped well ahead of the OCR. This means limited further declines from current levels and while two-year swap rates may fall further, they are near their cyclical trough around the low to mid 3.0% range. Bond rates will be impacted more by the global market, particularly the U.S. where markets have moved to anticipate fewer and more gradual Fed cuts.
Focus is starting to also shift towards the other side of the interest rate cycle with expectations that both short and long dated rates may start lifting at some stage in 2026. Mid-2025 to mid-2026 may prove to be the bottom of the interest rate cycle.
Improving economic outlook for New Zealand
Recent surveys of business and consumer sentiment indicate that more accommodative interest rates are setting up the framework for a rebound in economic activity during 2025.
This is evident in ANZ’s business confidence survey showing both general business confidence and firms’ own activity outlook remaining around decade high levels.
Forsyth Barr’s Pulse of NZ Business survey indicates that about half of businesses are budgeting for a better year ahead, and a similar proportion have already seen an improvement in the last three months.
The ANZ-Roy Morgan Consumer Confidence Index showing consumers feeling more upbeat over the past six months.
It remains to be seen if the more positive sentiment translates to a sustained lift in activity without government policy also turning more fiscally supportive, but if the economy improves as expected, consumers will likely drive the initial rebound. Capital spending, including investments in productive capacity such as business space, will follow later in 2025 but most likely not lift materially until 2026 once current excess capacity is absorbed, and the recovery is well entrenched.
This is evident in ANZ’s business confidence survey showing both general business confidence and firms’ own activity outlook remaining around decade high levels.
Forsyth Barr’s Pulse of NZ Business survey indicates that about half of businesses are budgeting for a better year ahead, and a similar proportion have already seen an improvement in the last three months.
The ANZ-Roy Morgan Consumer Confidence Index showing consumers feeling more upbeat over the past six months.
It remains to be seen if the more positive sentiment translates to a sustained lift in activity without government policy also turning more fiscally supportive, but if the economy improves as expected, consumers will likely drive the initial rebound. Capital spending, including investments in productive capacity such as business space, will follow later in 2025 but most likely not lift materially until 2026 once current excess capacity is absorbed, and the recovery is well entrenched.