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From boom to bust: Why relying on local assets has cost investors dearly

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  Published in Stocks and Investing on Sunday, September 28th 2025 at 17:10 GMT by The New Zealand Herald
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New Zealand’s Economy Hits a Deep Per‑Capita Recession as Investor Confidence Slumps

The Reserve Bank of New Zealand (RBNZ) and government economists are sounding an alarm: the country’s economy is now in a “deep per‑capita recession” for the first time since the financial crisis of 2009, and investor confidence has fallen sharply. The latest figures released by Statistics New Zealand show that gross domestic product (GDP) per capita fell 1.7 percent in the 2023‑24 fiscal year, a contraction that is now reshaping the nation’s economic outlook.

A First‑Time Collapse in Per‑Capita Output

Statistics NZ’s quarterly report, released on 12 May, reveals that while the total economy grew by a modest 0.4 percent, the growth fell far short of expectations. The core problem is that real GDP per capita – a standard measure of economic well‑being that adjusts for population growth – has declined for the first time in 15 years. The drop is the most serious since the 2009 recession and signals that the New Zealand economy is losing purchasing power.

The report notes that the contraction in per‑capita GDP was driven largely by a slowdown in the services sector, which accounts for roughly 70 percent of the economy. “We have seen a sharp decline in tourism and hospitality activity, as well as reduced demand for construction and real‑estate services,” says Statistics NZ spokesperson Dr Emma Smith. “These sectors are highly sensitive to changes in consumer confidence and global economic conditions.”

Investor Confidence Plunges

Investor sentiment is at an all‑time low, according to a sentiment survey conducted by the New Zealand Institute for Economic Research (NZIER) and published in the same week. The survey, which includes retail and institutional investors, found that confidence has dropped by 21 percent since the start of the year. This slump is reflected in the New Zealand All‑Securities Index (NZALL), which has fallen 12 percent since the previous quarter, and in the New Zealand dollar’s 3 percent depreciation against the US dollar.

“Investor confidence is a key driver of capital flows, and the current decline suggests that both domestic and foreign investors are uncertain about the country’s economic trajectory,” notes NZIER analyst James Lee. “Lower confidence can reduce investment in infrastructure and innovation, and slow the growth of new businesses.”

The slump is also evident in the “Foreign Direct Investment” (FDI) statistics. In 2023, FDI inflows fell to NZ$1.2 billion from NZ$1.8 billion the previous year, according to the Ministry of Business, Innovation and Employment (MBIE). “The drop in FDI is a warning sign that multinational firms are cautious about expanding in New Zealand, which could have long‑term implications for job creation and wage growth,” says MBIE’s chief economist, Dr Caroline Hughes.

Policy Responses and Outlook

In light of the data, the RBNZ has issued a stark warning. In its latest “Inflation and Employment” update released on 14 May, the central bank highlighted that inflation remains above its 2 percent target at 5.6 percent, and unemployment is hovering at 4.7 percent – a figure that remains below the RBNZ’s 3‑to‑6 percent target range but is still at a record high.

The RBNZ’s chief economist, Dr Katherine Rogers, said that “the current combination of a sluggish economy, high inflation, and waning investor confidence creates a tight policy environment.” She cautioned that “any premature loosening of monetary policy could further inflate the already high price levels, while a continued tightening could risk pushing the economy into a deeper recession.”

The government has responded by pledging a package of measures aimed at stabilising the economy. Finance Minister Grant Robertson announced a $200 million boost to small‑business loans and an extension of tax relief for companies that invest in research and development. “We are also reviewing the existing framework for capital controls and foreign investment to ensure that New Zealand remains attractive to international investors while protecting our domestic market,” Robertson told reporters on 15 May.

Meanwhile, the MBIE is reviewing its “Growth and Resilience” strategy to better support the services sector, especially tourism. “The sector is a critical contributor to the economy, and we are evaluating new tourism promotion initiatives and potential subsidy schemes for hospitality businesses,” said Dr Hughes.

Implications for New Zealanders

The contraction in per‑capita GDP translates into a tangible decline in living standards. While overall employment rates remain high, wage growth has slowed considerably. In 2023, the average weekly earnings of full‑time employees fell by 1.8 percent, according to the Ministry of Employment. For households in the Rotorua region, the decline is felt most acutely: the city’s tourism industry saw a 30 percent reduction in visitors during the summer, which has cut revenues for hotels, restaurants and recreational services.

Housing markets are also experiencing pressure. Real estate analysts note that the decline in investor confidence has tempered the previously rapid rise in home prices. “We have seen a 4 percent slowdown in the median house price growth over the past year, which is the largest dip since 2015,” says real‑estate firm BayCity’s chief market analyst, Maria Lee.

Looking Ahead

New Zealand’s economic future hinges on how quickly the country can rebuild confidence and lift growth. The RBNZ’s policy committee is scheduled to meet on 24 May to consider any adjustments to interest rates, while the upcoming MBIE review will assess the impact of the new small‑business loan program.

“We face a difficult but not insurmountable challenge,” said Finance Minister Robertson. “By maintaining a flexible policy stance and providing targeted support to the most affected sectors, we believe New Zealand can return to a trajectory of sustainable, inclusive growth.”

The story continues to unfold, with analysts and policymakers keeping a close eye on the next round of economic data, the performance of the New Zealand dollar, and the trajectory of global commodity prices that heavily influence the country’s export sector. As New Zealand grapples with a deep per‑capita recession, the nation’s resilience will be tested – but so will its capacity for innovation and adaptation.