New Zealand's Economy in 2025: Persistent Challenges and Emigration Trends

‘Steady as she goes’ may have appeared inadvisable for many nations during 2025. But for New Zealand, where domestic concerns dominated, it was the course Wellington chose. In 2025, the government faced strong criticism for what was seen by many New Zealanders as an under-performing economy. The immediate material consequence was an increase in emigration, especially among young professionals seeking greater opportunities in Australia and further afield. Domestic emigration was covered by even higher rates of immigration, though that brought pressures of its own as the make-up of that immigration was primarily from East and South Asia, stoking racist reactions in some quarters. The government’s response was to seek sustainable medium to long-term solutions for the wider economy rather than short-term fixes to address specific issues. The 2026 general election is unlikely to lead to any directional change in already signalled policy settings, though there will be specific changes in detail. Some of these are highly contentious in terms of their perceived effects on the Māori population. New Zealand asserts an ‘independent foreign policy’ but in practice this is as much rhetoric as reality. In mid-2025, New Zealand Foreign Minister Winston Peters set out the country’s approach to the international environment. The emphasis was on international rules and relationships, both of which are showing signs of strain. The 2025 international arena saw New Zealand — as with the rest of the world — dealing with unpredictable US policy. The imposition of arbitrary tariffs in mid-2025 directly affected New Zealand exports, the basis of the country’s wealth. New Zealand’s 2025 Defence Capability Plan, signalled a steady approach to defence. New Zealand will continue with a small, relatively modern general-purpose military, designed primarily to work with friends and allies rather than to conduct independent operations. New Zealand continued discussions with traditional allies Australia, the United Kingdom and the United States on technological cooperation within the AUKUS defence relationship. Beyond the United States, 2025 saw New Zealand continue its already strong relationships with China and ASEAN alongside widening its bilateral Asian relationships with India, Vietnam and the Philippines, among others. But New Zealand’s relationship with the Cook Islands was a thorn in its side. The Cook Islands are constitutionally a part of New Zealand but have considerable autonomy — almost sovereignty. Following a formal cooperation agreement between the Cook Islands and China, New Zealand withheld previously routine financial support to the Cook Islands for the 2025–26 financial year, citing ‘insufficient consultation’. The Cook Islands’ maintenance of an international ‘flag of convenience’ register for merchant shipping also irritated Wellington when stories emerged that the flag was possibly used to circumvent sanctions against Russia. By the end of 2025, the Cook Islands had confirmed that it was compliant with the sanctions regime. In 2026, New Zealand will maintain the same cautious approach to its relationship with the United States that it took in 2025. New Zealand is unlikely to comment stridently on US actions, instead preferring to remain below the US radar. New Zealand is equally unlikely to support US actions that violate international law. But as New Zealand’s cautious response to the US intervention in Venezuela signals, this does not extend to outright opposition. The ongoing rivalry between China and the United States continues to create a difficult geopolitical environment for New Zealand. While New Zealand’s strategic relationships are firmly rooted with the United States and traditional allies, its primary economic relationship is with China. To manage this, the government will need to emphasise the positive aspects of both relationships while attempting to minimise any negative friction. This constant balancing act between strategic and economic interests is expected to be a dominant preoccupation. In this context, Australia is the country’s most important relationship. But Australia is much more committed to the US relationship than is New Zealand and this has the potential to create tensions. The two countries must ensure they understand each other’s position completely and remain as synchronised as possible in their foreign policy approach. The strategic effort to broaden and deepen trading ties with Asia, the Middle East and Latin America will continue. This includes diversifying both the products offered and the markets reached. A free trade agreement with India was concluded at the end of 2025 but will not be signed until some months into 2026. Another key priority will need to be growing the domestic economy so it can compete effectively on the global stage. The strategies for this will involve initiatives to support the regions, specifically targeting the technical innovation sector and other high-value-added industries and encouraging international investment. The government will also continue to respond to increased international interest in the South Pacific, particularly from China. This has caused concern over a potential loss of New Zealand’s regional influence and prompted New Zealand to reinforce its relationship within the region. The issues confronting New Zealand in 2026 and its approaches to tackling them are not new, with the exception of the United States’ increasingly arbitrary foreign policy. New Zealand is well placed to deal with the issues and will continue its ‘steady as she goes’ approach to the rest of the world in 2026. Jim Rolfe is Senior Fellow at the Victoria University of Wellington.