New leadership for economic growth
Following a government reshuffle announced by Prime Minister Christopher Luxon, Nicola Willis (pictured above) has been appointed as the new minister for economic growth.
Willis, acclaimed for her role in implementing tax relief and instilling fiscal discipline in 2024, is tasked with stimulating growth amidst a slow recovery.
The prime minister expressed confidence in her capabilities, emphasising her success in reducing inflation and interest rates, setting the stage for her to energize New Zealand businesses in 2025, RNZ reported.
Navigating economic challenges
Despite favourable conditions like tax cuts and lower interest rates facilitated by the Reserve Bank, significant hurdles loom on the horizon.
According to Infometrics CEO Brad Olsen, economic growth in the near term is expected to be heavily reliant on private consumption, which is projected to account for 43% of economic activity growth from the end of 2024 to the end of 2026.
However, the challenge lies in stimulating business investment, which has been tepid, with investments in plant machinery and equipment dropping to their lowest levels since late 2020.
Olsen suggested that to achieve long-term growth, New Zealand needs to boost private and business investment, which has been hindered by high interest rates and subdued household spending.
The Treasury forecasts a 9.4% increase in business investment by 2026, highlighting the need for strategic government intervention to facilitate this growth.
Strategic moves and long-term focus
With government funds limited, Olsen advised that the path to growth involves structural and regulatory reforms rather than direct financial interventions. Additionally, leveraging trade agreements more effectively is crucial, given the current unstable global trade environment.
Salt Funds economist Bevan Graham echoed the sentiment of focusing on economic capacity, emphasising the need for productivity-driven growth to ensure sustainable wage increases and superior public services without spurring inflation.
Outlook for 2025 and beyond
As the minister for economic growth, Willis, alongside Chris Penk, who now oversees manufacturing and small business, faces the task of steering New Zealand’s economy through these complex challenges.
The economic landscape in 2025 presents both opportunities and obstacles, with potential supports for the market and looming issues like debt-to-income ratio caps that could affect borrowers, RNZ reported.
