Are we there yet?
The seemingly endless journey toward economic recovery has continued to take its toll this past quarter. In September, RNZ and other outlets reported further economic shrinkage, with GDP falling by 0.9% for the June quarter. While a decline was expected, the extent of it came as a surprise. Stuff linked several industries to the downturn, including mining (down 4.1%), manufacturing (down 3.5%), and construction (down 1.8%).
The high cost of living and stagnant growth have also contributed to a surge in migration from New Zealand. Reuters reported 71,800 New Zealanders left the country in the year ending June 2025, just shy of the 2012 record of 72,400. Of those leaving, 38% were aged between 18 and 30.
There is, however, a silver lining, at least for those with debt. The sluggish economy has prompted a corresponding drop in the OCR to 2.5%, with major banks following suit. With elections looming next year and growth expected to remain low, further cuts may be on the horizon — assuming inflation stops flirting with the Reserve Bank’s 3% threshold.
Unfortunately, as we noted last quarter, IRD remains highly active in both compliance and debt collection. RNZ reports overdue tax now totals $10 billion, and liquidations are up 26% year on year, partly due to IRD’s increased enforcement efforts.
It’s not all doom and gloom, though. According to Newsroom, there has been significant growth in primary exports — particularly dairy, beef, sheep, and kiwifruit. The upcoming relaxation of loan-to-value (LVR) ratios will also give banks more flexibility to consider lending to borrowers with less than 20% equity. And in a move some may welcome (and others not so much), the 2018 Oil and Gas exploration ban has been lifted.
Our Take
From our conversations with clients, we’re hearing a mix of uncertainty and concern, understandable given the current climate. However, it’s important to remember that confidence is a key driver of economic recovery.
Here are a few practical steps to consider:
1. Review your debt and interest rates.
Understand your various debt levels, interest rates, and loan terms. The LVR changes may provide opportunities to refinance higher-cost debt (such as credit cards or second-tier lending) to more affordable rates. Consider splitting lending across multiple terms to hedge your interest exposure.
2. Reassess staffing and costs for 2026.
In a tightening employment market, focus on retaining key staff while managing wage costs responsibly. Planning now will help you balance performance and sustainability.
3. Don’t ignore IRD debt.
If you’re struggling to meet tax obligations, talk to us early about payment plan options. There’s been an increase in reports of IRD accessing bank accounts directly or contacting employers to recover overdue amounts.
4. Seek advice early if you’re concerned about solvency.
If debts are mounting or business continuity is at risk, contact us sooner rather than later. We can connect you with insolvency experts who can help you manage the situation effectively and ensure directors are protected from personal liability for insolvent trading.
What’s Next
Pessimism can become a self-fulfilling prophecy, partially impacting economic growth. Therefore, plan for the best, prepare for the worst. Uncertain times can lead to opportunities and ways to reduce costs. Our forecasting and ‘what if’ planning can help you take steps forward with confidence.
We’re here to help you plan for the best and prepare for the rest.
Recent Reading
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New Zealand’s population exodus hits 13-year high as economy worsens – Reuters
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‘On the edge of recession’ – Stuff
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Economy contracts sharply as GDP falls 0.9% in June quarter – RNZ
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More companies going into liquidation after increased enforcement by IRD – RNZ
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Inland Revenue says tax crackdown paying off – RNZ
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Where’s the growth in the NZ economy? – Newsroom
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LVR changes: How will they affect the housing market? – RNZ
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Why Inland Revenue is taking money from bank accounts – RNZ