Market Update: Is the economic recovery enough to save the coalition? – Richard Prebble – Full Analysis

It is the economy that will be decisive.

When Stats NZ reported that the June quarter economy had shrunk, it looked grim for the coalition.

Last week’s report confirmed that the 1% fall was a dip, not a collapse. The economy grew by 1.1% in the September quarter.

That is history. The question is: how is 2025 ending?

We have a world-leading tool to help answer that. Massey University’s GDPLive uses AI to analyse real-time data to estimate how the economy is performing. GDPLive reports the economy has been growing for about six months. This quarter it grew 0.631%. The latest estimate is 0.957%. Inflation is 2.75% – within the Reserve Bank’s remit.

GDPLive also suggests the official cash rate is around half a per cent too high. Monetary policy is still acting as a handbrake. The bank may regret saying interest rates had stabilised.

Nearly 1% growth is a significant rebound. It is about as good as the economy has been for a decade. But compared with New Zealand’s historic growth rate of around 2.5 to 3%, it is a long way from booming.

There are other indicators of how the economy is tracking.

The ANZ Truck-o-Meter, which monitors road-user charges paid by heavy and light trucks, is a very good guide. If goods are being sold, freight is moving. In November, the Light Traffic Index eased 0.2% but was 3.3% higher than a year earlier. The Heavy Traffic Index slipped 0.1% on the month and was up 0.9% year-on-year. That is consistent with a steady recovery.

Then there is card spending. ANZ reports card spending about 4% higher than a year ago. Spending on Westpac cards is up closer to 8%.

Retailers are seeing tentative green shoots. Inside Retail reports that Black Friday sales recorded a moderate increase.

Consumers are still cautious, but confidence has lifted. The ANZ-Roy Morgan Consumer Confidence index rose six points in November to 98.4. A net 21% expect to be better off in 2026.

The Westpac McDermott Miller index rose 5.6 points to 96.5 in the December quarter. Anything below 100 signals pessimism, but expectations for next year are above 103.

The big item is housing.

After years of decline, the housing market has stabilised. Prices are flat to mildly rising. Lower interest rates have made housing more affordable. Rents are flat to falling, easing pressure on household budgets.

After interest rates, petrol is the next obvious risk. At around $2.60 a litre, it isn’t cheap, but it isn’t crippling. It won’t derail holiday plans – or choke the recovery.

Employment is always the last part of the economy to turn. The official data is backward-looking. The September unemployment rate was 5.3%, up from 4.7% a year earlier. About 160,000 people were unemployed, according to the Household Labour Force Survey.

Of those who were unemployed, 22,700 (14.5%) had been unemployed for over a year. Being unemployed for over a year is one measure of long-term unemployment.

To assess what is happening now, job advertisements are more informative. SEEK NZ reports job ad volumes up about 7% year-on-year and up around 1% in November – the strongest annual growth since late 2022. The job market remains soft, but it is improving.

There is also anecdotal evidence. A young man I know who had been out of work picked up a part-time job last month. It has just been made fulltime. For him, the year is ending very well.

The broader right-way/wrong-way measure remains negative, extending back into Labour’s final years, with only a modest lift after the election. In November, the poll improved slightly: men were evenly divided, women remained negative. When this measure turns positive, governments almost never lose.

The recovery is now about six months old – fragile but growing.

The country has had a Christmas present. After 15 years of successive governments trying, the Prime Minister can take much of the credit for concluding a free trade agreement with India.

Before the coalition pops the champagne, there is one final statistic that matters more than all the rest: GDP per person. When that is rising, governments usually win. Since the election, population growth has outpaced economic growth. GDP per person is now around $1000 lower.

It will require stronger growth to lift GDP per person. With lower interest rates and the Fonterra payout, 2026 should be a better year.

But elections are not won on forecasts. They are won on living standards.

Will it be enough to re-elect the coalition?

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