GDP growth in NZ is on course to outpace Australia over the next few years. Even so, economic and labour market conditions in Australia look set to remain firmer than in NZ for some time yet.
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When we last peeked over the Tasman in late 2024, the Australian economy was enjoying more robust economic conditions than New Zealand, with firmer GDP growth and a stronger labour market.
Jump forward a year and we are now moving into a new phase of the economic cycle, with economic growth in New Zealand set to outpace Australia over the next few years.
These diverging economic trends in New Zealand and Australia in large part reflect differences in monetary policy. The Reserve Bank of New Zealand’s earlier aggressive tightening of policy meant that we experienced a sharper downturn in growth in recent years. However, now that inflation has dropped back, the RBNZ has also been able to cut rates faster, with a 250bp reduction in the Official Cash Rate to date and a likely 50bps more to come before the end of 2025. Over time, that will help to boost both domestic demand and employment.
In contrast, the Reserve Bank of Australia took a more gradual approach to tightening policy which helped to support growth and the labour market in previous years. However, its easing cycle has also been more gradual—with Australia’s cash rate having only been cut by 75bps since the start of this year, interest rates across the Tasman remain at mildly restrictive levels.
But despite the slower pace of monetary easing and cooling economic growth, Australia’s economy and labour market have remained firmer than in New Zealand, and that’s set to continue for some time yet.
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