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New Zealand's Economic Recovery Shows Stronger Momentum in the South Island

Kiwibank economists report that the South Island is leading New Zealand's economic recovery, with regions like Queenstown, Southland, and Otago outperforming their northern counterparts.

News AutomationCompiled 08:06 UTC · 1 min read

An economist discusses the varying speeds of economic recovery across New Zealand's regions.

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South Island economies are continuing to outperform the north, as a patchy economic recovery starts to take hold, say Kiwibank economists.

In Kiwibank’s latest Regional Score report, Queenstown has topped the rankings with a score of 9 out of 10, followed by Southland and Otago (7) – while Taranaki (3)and Wellington (3.4) sat near the bottom of the table.

The report shows a persistent divide between the two islands, with the South Island recording an average regional score of 5.1 compared with 4.0 in the North Island.

Kiwibank chief economist Jarrod Kerr said the figures highlight a recovery that is gaining traction in some regions but remains frustratingly slow for many New Zealanders.

“The economy is improving, but it’s doing so at different speeds across the country.”

Tourism-heavy and agricultural regions in the South Island were leading the way, while many households and businesses in the North were still feeling the pressure of weak demand, higher costs and economic uncertainty, he said.

Queenstown remained a standout performer, supported by strong visitor numbers, low unemployment and ongoing demand in the housing market.

At the same time, many North Island regions continue to face softer business conditions. Auckland’s economy remains subdued, while Wellington businesses report holding back investment decisions amid economic and political uncertainty.

The divergence was particularly evident in labour market data.

North Island unemployment averaged around 6%, compared with 3.7% across the South Island.

Underutilisation, which includes both unemployed and underemployed workers, remained elevated nationally at 13.8%, with Northland recording one of the weakest outcomes.

Economist Jarrod Kerr says the economy is improving, but it’s doing so at different speeds across the country. Photo / Fiona Goodall

“The labour market tells the story clearly. Many households are finding it difficult not just to secure work, but to secure enough hours and income. That’s especially true in parts of the North Island,” Kerr said.

Property markets also reflected the regional split.

While national house prices had largely moved sideways over the past three years, Otago and Southland have outperformed, Kerr said.

House prices in Auckland and Wellington remain well below their post-pandemic peaks.

Despite the subdued conditions, Kiwibank expected the recovery to strengthen through 2027.

Lower interest rates, improving agricultural incomes and another strong tourism season are expected to support economic activity, particularly across regional New Zealand.

“The good news is that the foundations for stronger growth are in place and the direction of travel is positive. Tourism is rebounding, commodity prices remain supportive and lower borrowing costs should help lift activity over the coming year,” Kerr said.

It was disappointing that we had been through “another year without a meaningful recovery”, he said.

“It’s disappointing for firms facing higher costs and a despondent consumer. And it’s disappointing for households stuck in a cost-of-living crisis.”

But despite having delivered a similar message about potential recovery this time last year, Kerr said he was sticking with an optimistic take.

“We’re just going to have to say it again: a recovery is underway and should strengthen into 2027.

“So yeah, we keep our glass half full. The recovery is coming. We’d hate to wake up in a year’s time only to deliver the same message again [hopefully the AI investment boom doesn’t bust … surely not]."

Kiwibank’s Regional Score summarises seven economic indicators in 13 regions.

Included in the scores are: population growth, retail sales, employment & unemployment rates, house price index, house sales and residential consents.

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.

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