Kiwibank’s Latest 2025 Outlook: Tariff Turmoil Stalls Growth - Are Rate Cuts The Remedy?

• Signs of Recovery: Green shoots are emerging, albeit slower than initially anticipated. Kiwibank Economists now forecast economic growth of just 0.9% for 2025, signalling recovery is underway.
• Tariff Turmoil: Global trade disruptions – driven by tariff changes - pose the biggest threat to recovery, stalling global growth.
• Rates to the Rescue: Monetary policy remains central to the recovery. The Reserve Bank has already cut rates by 225 basis points, with a further 75 basis points of easing expected by year-end to support confidence and stimulate growth.

After emerging from last year’s recession, Kiwibank’s latest Economic Outlook reflects a recovery that has begun – but is softer than previously forecast.

While early signs of stabilisation were visible earlier last year, such as expansion in PMIs and solid rural export volumes. However, global instability is dampening momentum.

Mary Jo Vergara, Senior Economist at Kiwibank, says “The early signs of recovery - as fragile as they are - have been driven mainly by the external sector, the sector most vulnerable to ongoing global uncertainty. A slowdown in global growth now looks certain. Both the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) have cut their forecasts - just as we’re starting to recover.”

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“We’ve climbed out of the deep hole we fell into last year. But it’s been a tough time for many businesses and households. What’s needed now is policy support and sustained confidence to build momentum.”

Per capita, economic activity remains subdued – more so than during the global financial crisis. As a result, Kiwibank Economists have revised the 2025 growth forecast to 0.9% from 1.4%.

The labour market remains tight, though some softening is expected before a gradual improvement into 2026.

Tariffs and trade tensions weigh on growth

Since the last Kiwibank Economists Outlook, global growth forecasts have been lowered. The IMF now expects 2.8% growth in 2025 - down from 3.3%. The US - New Zealand’s second largest export market - has seen growth cut by more than a full percentage point. Growth in China, our largest trading partner, is projected to hover around 4%.

Tariff changes and broader trade tensions are unsettling markets. While inflation risks remain, it is weaker global demand that now poses the greater concern, dampening investment and spending globally.

“The global economic landscape is shifting rapidly, and while uncertainty remains high, it’s crucial that businesses stay alert to these changes. Flexibility and informed decision-making will be key to weathering this period of slower growth. New Zealand’s connection to the global market means we’re not immune to these challenges. But by understanding the risks and adapting early, we can position ourselves so we can harness the turning of the tide,” says Vergara.

Rate Relief Still Needed

The Reserve Bank of New Zealand (RBNZ) has cut interest rates by 225bps since August 2024, with further easing expected.

“We forecast another 75 basis points of cuts, taking the OCR to 2.5% by year-end,” Vergara says. “Wholesale markets have just one more 25bp cut to 3% priced. That’s not enough, in our view. We’re likely to need another 50bps beyond that, to provide the necessary support.”

The RBNZ may pause in July at 3.25%, but we expect the data to evolve in a way that demands more rate relief. Falling deposit rates and improving credit availability are expected to stimulate more borrowing and spending through the second half of the year.

“If momentum continues and global headwinds ease, we expect a stronger 2026,” Vergara concluded.

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