A series of economic releases last week declared the recovery had resumed.
Pssst ... the recovery has started.
Don’t take my word for it.
While I usually like to be ahead of the curve on making these kinds of calls, I’m still feeling burned by the false starts of the past three years.
I’m highly conscious of a “cry wolf” risk around economic forecasting.
But for all that, I can’t ignore that almost every major economist covering New Zealand has decided it’s time to talk recovery again.
You’ll just have to imagine that as you read this snapshot of upbeat economic consensus – all released in the past week.
- Reserve Bank of New Zealand (RBNZ) Governor Anna Breman: “New Zealand’s economic recovery has most likely resumed.”
- New Zealand Institute of Economic Research senior economist Ting Huang: “Cautious recovery resumes as fuel prices ease.”
- ANZ chief economist Sharon Zollner: “Data this week painted a picture of an economy that continues to recover.”
- Kiwibank chief economist Jarrod Kerr: “New Zealand’s recovery is underway.”
- Westpac chief economist Kelly Eckhold: “Despite a rocky few months, the recovery is resuming, and the outlook is encouraging.”
- ASB senior economist Mark Smith: “The recovery is expected to strengthen and broaden.”
- BMI (a unit of Fitch Solutions): “The recovery appears to have resumed after weakness earlier in the year, supported by robust export performance and resilient demand from trading partners.”
- BusinessNZ chief executive Katherine Rich: “New Zealand’s economic recovery is gaining real traction.”
- S&P Ratings analyst Anthony Walker: “New Zealand’s economic growth outlook is improving after a tepid period”.
- Infometrics principal economist Nick Brunsdon: “New Zealand’s economic recovery advanced further in the June 2026 quarter, despite headwinds from the Iran War.”
I might have missed a few, but you get the picture.
Whoa ... let the good times roll ...
I should note that I clipped some qualifying clauses. Economists like to add words such as “patchy” and “slow” and “data-dependent”.
Regardless, I think we’ve got a consensus that the recovery is underway again and things will get better from here.
What’s caused the shift in outlook?
It’s pretty subtle, to be honest. Some slightly better-than-expected inflation data, a small lift in business confidence, the ongoing strength of the export commodity boom.
The biggest factor has been economists feeling the confidence shock from the Iran war has played through.
Nothing’s been resolved, but oil prices are bouncing around between US$80 ($135) and US$100 a barrel.
We’ve all kind of adjusted to that.
But I think there is still a disconnect between what the economists are saying and how the average Kiwi is feeling about the economy.
Breman spelt it out last week.
“So far, household spending has been the missing piece of the recovery,” she said.
“Weak income growth, job insecurity, falling real house prices, and higher fuel costs have weighed on household spending.”
The RBNZ had noted that Kiwis were saving more, she said.
“Spending has been less than disposable income growth, and saving has actually increased.”
In other words, many consumers have actually seen their financial position improve in the past year, but they are too nervous to relax and enjoy it.
It’s our fault!
“Looking ahead, we expect spending to gradually strengthen as inflation falls and real income rises,” Breman said.
“Stronger consumption will broaden the recovery, particularly in the services sector. [That is] important for job growth because the services sector employs over 70% of working New Zealanders.”
We can see this missing piece in the recovery puzzle when we look at the latest consumer spending data and confidence surveys.
Consumer confidence is still very low and eased back in the ANZ Roy Morgan survey for August.
Spending is still very subdued but has been creeping up slowly for a few months, according to Stats NZ electronic card transaction data.
When it comes to looking for signs of a consumer pick-up, I’m more inclined to trust actual spending data than people’s opinions.
Surveys that involve people self-reporting are almost always biased.
Almost everyone thinks they are of above-average intelligence.
Even those people who are probably above average in intelligence overestimate their own abilities.
A 1977 study found 94% of university professors rated themselves as above-average teachers.
People show an optimism bias when they assess how good they are or how healthy.
Research shows they over-report good behaviour (things such as voting, charitable giving, exercise) and under-report “bad” behaviour (like drinking, smoking and overeating).
Let’s face it, most of us live in a blissful state of self-delusion.
But when it comes to the economic outlook, suddenly we are pessimists.
In 2024, the Keenan Institute of Private Enterprise in the US reported on the disconnect between consumer sentiment and the actual economic indicators.
It noted the so-called misery index, which sums unemployment and inflation rates, was at a historically low level, but so too was consumer sentiment.
I think this disconnect will linger in New Zealand over the next several months.
About a month ago, I made a big call: it’s too late for the economy to save National now.
I’m always happy to admit when I’ve got something wrong.
Regardless of the political implications, I’ll always take a stronger economy sooner, thanks.
But I don’t think I’m wrong yet.
I still think that Christopher Luxon and Nicola Willis, just like all the economists, have a job ahead of them to convince people that things are really coming right this time.
Big, ugly lagging economic data such as unemployment and company liquidations still cast a long shadow over sentiment.
This is the stuff that keeps rising for months, generating headlines, even after a recovery begins.
Economists expect these stats to be slow to turn, so they can look through them.
But combined, as they are, with public scepticism and the PTSD of the past three years, there is a risk they delay consumer confidence and the bounce in spending this recovery needs.
That’s a risk the RBNZ will need to be alert to as it weighs further interest rate hikes this year.
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.
