New Zealand’s economy contracted 0.9% in the second quarter of 2025, with Finance Minister Nicola Willis attributing the decline to global uncertainty and the impact of United States tariffs on business and consumer confidence.
The contraction, revealed in Stats NZ data released today, followed 0.9% growth in the first quarter and was worse than major bank expectations of around 0.4%. Willis says the timing was critical, with the second quarter beginning just before US tariff announcements.
“International turmoil and uncertainty relating to tariffs clearly had an impact on firms’ and households’ willingness to make investment decisions,” Willis says. “The economy had been growing strongly in the previous six months, but suddenly had the stuffing knocked out of it.”
The decline was broad-based, affecting 10 out of 16 industries. Manufacturing bore the brunt of the downturn, falling 3.5% in the June quarter, led by drops in transport equipment and machinery production. Mining declined 4.1%, while construction fell 1.8% following reduced demand for residential building.
Stats NZ economic growth spokesperson Jason Attewell says the fall reflects widespread economic weakness. “GDP has now fallen in three of the last five quarters,” he says.
Exports dropped 1.2%, with declines in dairy, meat and other food and beverage exports contributing to the overall weakness. Primary industries saw a 0.7% decline over the quarter.
However, some sectors bucked the trend. Rental, hiring and real estate services provided the largest upward contribution, rising 0.7%. Electricity, gas, water and waste services increased 0.4%, while information media and telecommunications services grew 1.8%.
Political responses diverge
Labour finance spokesperson Barbara Edmonds used the data to criticise the government’s economic management, saying Prime Minister Christopher Luxon had “failed dramatically” despite promises to fix the economy.
“New Zealand is now on the edge of a recession – and Christopher Luxon has no plan to turn things around,” Edmonds says. “Thousands of jobs are being lost, businesses are struggling to stay afloat, and record numbers of New Zealanders are leaving to find work overseas.”
Willis maintains the data is backwards-looking and points to signs of recovery. “We are now nearing the end of the third quarter and there are signs the economy is growing again,” she says. “Lower interest rates are filtering through the economy. There is evidence of increased mortgage lending.”
International comparisons
New Zealand’s performance lagged most comparable economies in the June quarter. Australia recorded 0.6% growth, the United States grew 0.8%, and China expanded 1.1%. Only Canada performed worse among major developed economies, contracting 0.4%.
The Reserve Bank had anticipated the contraction, noting in its August Monetary Policy Statement that economic indicators suggested weakness in the June quarter, partly attributed to global uncertainty from US trade tariffs.
Despite the quarterly decline, household consumption expenditure increased 0.4%, with rises in spending on televisions, computers and telecommunications equipment suggesting some consumer resilience.
Willis says forecasters expect economic growth to strengthen as tariff uncertainty eases. “All forecasters are expecting economic growth to strengthen from now on as uncertainty about the impact of increased tariffs eases,” she says.
The GDP decline of 1.1% over the 12 months to June reflects the challenging economic environment, but the Reserve Bank expects growth to increase over the coming year as conditions stabilise.
