Key Takeaways:
- The New Zealand economy is expected to be a major factor in the upcoming election, with the current government hoping to capitalize on favorable forecasts for 2026.
- The correlation between house prices and household wealth is a key indicator of economic sentiment, with rising house prices making homeowners feel richer and more likely to support the government.
- The opposition parties, including Labour and Te Pāti Māori, face challenges in their campaigns, with Labour’s strategy focused on turning back the clock to simpler times and Te Pāti Māori dealing with internal struggles and potential defections.
- The government is pulling out all the stops to make the case for its economic management, including assessing the impact of its Resource Management Act reforms on growth.
- Consumer confidence is slowly improving, but it remains to be seen whether this will be enough to secure the government’s re-election.
Introduction to the Economic Landscape
The New Zealand economy has been a major focus of attention in recent months, with the Reserve Bank cutting interest rates in August last year and forecasts for 2026 looking favorable to the incumbent right-wing government. The economy is expected to experience low consumer price inflation, stable growth, lowish unemployment, and rising house prices, which are conditions that have historically benefited the government. However, this economic affection for real estate has been compared to an addiction, and it is not necessarily healthy. Nevertheless, it is a key factor in the government’s strategy to win the upcoming election.
The Importance of House Prices
The correlation between house prices and household wealth is a crucial indicator of economic sentiment. As house prices rise, households feel richer, and as prices fall, they feel poorer. This correlation is closely tracked by the Treasury, which has made it the subject of one of its Hyefu special topic boxes. The data shows that as house prices increase, households, on average, get richer, and as prices decrease, things go the other way. This is good news for the two-thirds of households that own homes, but bad luck for the third of households that rent, who are unlikely to be the coalition’s marginal voters.
Delayed Recovery
The recovery has been delayed and delayed again, with the Treasury’s latest forecasts suggesting that the election will be fought not against the backdrop of a recovered economy, but instead a recovering one. The green shoots of recovery have emerged, with some positive news for the government in Stats NZ’s food price data, showing the pace of price increases starting to slow. However, prices for staples continue to rise, and this won’t be enough on its own to satisfy voters. Conventional political wisdom says that voters need a good long while of positive economic news before they start to feel better about the government.
Consumer Confidence
The latest ANZ-Roy Morgan consumer confidence survey suggests that consumers are starting to feel happier, with consumer confidence at its highest since September 2021. The most solid retail indicator in that series, the proportion of households thinking it’s a good time to buy a major household item, rose to net -1%. While this suggests the economy is heading in the right direction, it doesn’t raise hopes that it will have reached recovery by polling day. Recovering, rather than recovery, is a very challenging position, and the government is pulling out all the stops to make the case for the economy that will be, if not the economy that is.
Government Strategy
The government is asking the Treasury to assess the impact of its Resource Management Act reforms on the economy and consider what upward pressure that could put on growth in coming years. The Treasury agrees that better converting natural resources into economic activity, reducing the cost and complexity of that, creating more certainty about consenting conditions are positive for growth. This shows the lengths to which the government will go to make a case for itself and secure re-election.
Opposition Challenges
The opposition parties, including Labour and Te Pāti Māori, face challenges in their campaigns. Te Pāti Māori wobbled again this week with its former lawyer, Tania Waikato, announcing she’ll be a Green candidate at the next election. This is a good get for the Greens, but it raises questions about Te Pāti Māori’s ability to attract candidates who actually worked for it. Labour, on the other hand, has been tactful, speaking at length on bad news like Hyefu, and making itself scarce on GDP day. Labour heads into 2026 with an uncontroversial if uninspired policy slate that includes a capital gains tax by which the public seems unperturbed.
Conclusion
The New Zealand economy will play a crucial role in the upcoming election, with the government hoping to capitalize on favorable forecasts and the opposition parties facing challenges in their campaigns. The correlation between house prices and household wealth is a key indicator of economic sentiment, and the government is pulling out all the stops to make the case for its economic management. Consumer confidence is slowly improving, but it remains to be seen whether this will be enough to secure the government’s re-election. As the election approaches, it will be interesting to see how the government and opposition parties navigate the complex economic landscape and make their cases to voters.
