Key Takeaways
- The year 2025 has been characterized as "The Year of Blurrrgh" due to its failure to meet expectations of economic recovery and growth.
- The Reserve Bank of New Zealand’s (RBNZ) interest rate hikes in 2021-2023 may have been "overcooked," causing lasting damage to the economy.
- The economy has been slow to recover from the impact of high interest rates, with inflation, unemployment, and GDP growth not meeting expectations.
- The housing market has remained flat, with house prices not rising as predicted, and net migration levels have been low.
- The RBNZ has cut the Official Cash Rate (OCR) to 2.25%, but the effects of the rate cuts are taking time to feed through into mortgage rates.
Introduction to 2025
The year 2025 has been a disappointment in terms of economic recovery and growth. Despite predictions of a strong rebound, the economy has been slow to pick up, and the year has been characterized as "The Year of Blurrrgh." In the run-up to 2025, economists and commentators were championing the phrase "survive to 25," meaning that if the country could get through the difficult year of 2024, it would enjoy better things in 2025. However, as ANZ chief economist Sharon Zollner recently quipped, "survive to 25 just turned into survive 25," which neatly describes how the year has not lived up to expectations.
Economic Performance in 2025
The economic data for 2025 has been mixed. The annual rate of inflation, as measured by the Consumers Price Index (CPI), has risen from 2.2% in the December 2024 quarter to 3.0% in the September 2025 quarter. Unemployment has also risen, from 5.1% in the December 2024 quarter to 5.3% in the September 2025 quarter. GDP growth has been slow, with a 0.4% increase in the December 2024 quarter, followed by a 0.9% increase in the March 2025 quarter, and then a 0.9% fall in the June 2025 quarter. The data suggests that the economy has not been performing as well as expected, and the recovery has been slow.
Impact of Interest Rate Hikes
The RBNZ’s interest rate hikes in 2021-2023 may have been "overcooked," causing lasting damage to the economy. The hikes were intended to reduce inflation, but they may have had a more significant impact on the economy than expected. The subsequent cuts to the OCR have been slow to feed through into mortgage rates, and the economy has been slow to recover. The RBNZ has cut the OCR to 2.25%, but the effects of the rate cuts are taking time to materialize. The weighted average rates for new mortgages have fallen, but the yields the banks are getting from their entire mortgage books are still high.
Housing Market Performance
The housing market has remained flat, with house prices not rising as predicted. The RBNZ had forecast a 5% rise in house prices in 2024, but prices actually fell by over 1%. The forecast for 2025 was for a 7% rise, but this has not materialized. The market has been affected by high interest rates, which have made mortgages more expensive, and by low net migration levels. Rents have been flat, which has not been encouraging for investors. The housing market is a significant component of the economy, and its performance has a significant impact on consumer confidence.
Conclusion and Outlook
The year 2025 has been a disappointment in terms of economic recovery and growth. The economy has been slow to recover from the impact of high interest rates, and the housing market has remained flat. The RBNZ has cut the OCR, but the effects of the rate cuts are taking time to feed through into mortgage rates. The outlook for 2026 is uncertain, and it is difficult to predict whether the economy will recover. However, it is clear that the economy takes more time than expected to recover from the impact of a Reserve Bank-induced recession, and it is worth bearing this in mind for the future. In the next article, we will have a closer look at some of the key things to watch out for in 2026.
