New Zealand's 2025 Political and Economic Outlook
Winning Fixes Everything, Losing Exposes Fault Lines
New Zealand's political and economic trajectory for 2025 is cloudy. A gradual economic recovery may be on the cards. It is unclear whether it will be fast and strong enough, however, to overcome the tricky coalition dynamics that Luxon will have to balance.
The economy is projected to emerge from the shadow of recession this year. GDP growth will be modest for the remainder of the fiscal year but hopefully ticking over 3% in the year to follow. Inflation has been quelled, and further rate cuts may be accommodated by the Reserve Bank.
This may bolster household spending and business investment but leaves unresolved the more structural issues the economy faces. Sluggish productivity growth and persistent global uncertainties remain significant headwinds. And that’s just the bad stuff we already know about.
Everyone seems to accept that unemployment will peak at just over 5%. That uncomfortable by recent standards but, in the broader sweep of history, is well below politically toxic levels. Voters are more tolerant of modest unemployment than they are of persistent inflation, and so the trade-off is politically defensible for the government.
Economic recovery has a way of papering over political fault lines. Winning fixes everything, as they say in baseball. When a government is buoyed by business and consumer confidence internal differences will be more tolerated.
Without the salve of an improving economy the coalition government’s ability to hold together may be tested in 2025. The three parties in Parliament are united by their opposition to taxes and wokeness but not much else.
The Principles of the Treaty of Waitangi Bill will continue to be awkward for National even after the select committee finishes its work and the bill is voted down. I wouldn’t be surprised if that then leads to a campaign for a citizens’ initiated referendum. For National, that would take the issue from headache to migraine.
Contention over the Cook Strait ferry replacement is another danger. National and ACT will want something modest while the more populist NZ First will push for a railway centric approach that befits their role as the inheritors of Muldoonery. The can may end up being kicked further down the road and, while voters probably do not care that much in terms of voting preference, that would sour relations within the governing troika.
The media will obsess over the Deputy Prime Ministerial transition from Peters to Seymour. In itself, however, this is unlikely to be a source of conflict. The role really has symbolic significance only and even that symbolic power is mostly irrelevant. Power in a coalition flows from the ability to get your own way and not the nominal title you hold.
On the opposition benches, Chris Hipkins will continue to have a low profile. So far he has avoided major missteps but lacks the dynamism needed to inspire a party to anything like real recovery. Keiran McAnulty, once seen as a rising star, appears increasingly eclipsed by Willie Jackson, whose assertive style ensures he is as popular with party devotees as he is unpopular with the wider public.
Speaking of things being eclipsed, look for Te Pāti Māori to continue to establish itself as the left’s energetic voice at the expense of the Greens. The government’s agenda leaves TPM well-positioned to capitalise on its strong Treaty-focused stance, especially given its proven ability to intimidate journalists. I wouldn’t be surprised if their polling begins to converge before too long.
All this assumes the current direction of travel continues into the year. However, we have all been humbled enough times to know unexpected events can swiftly turn things on their head. For all we know, 2025 could be the year of:
A Trump trade war with major trading partners that destabilises international markets;
An uncontrolled bird flu outbreak that leads to another round of lockdowns;
Volatility in dairy commodity prices, with export revenues surging or collapsing depending on the weather in Europe;
Natural and manmade disasters; or
War breaking out - or a terrorist attack with profound social or political repercussions.
Events are always the curse of any political planner. Even if none of that happens, however, 2025 looks like it will be difficult enough. So, God, if you’re reading, please spare us from the unexpected challenges – and if it’s not too much trouble a year of stability and manageable growth would be good too.
Mate; the Divine runs to an agenda not quite as transparent as you’d like and certainly not as aligned with most human assumptions either! For all that, I do fancy it’s in our overall better interests … hopefully!! 🤞🏻
A nice political assessment that keeps everything in perspective. Some healthy objectivity.