There's never really a 'right' year for an election as far as I'm concerned - but 2026 is looking very much like the 'wrong' one.
As we end an undistinguished 2025, it seems to me the thing we are most in need of collectively is a bit of confidence. So, having an election campaign right when our economy is struggling to get back on its feet is unfortunate.
Why is this particularly so for next year?
Well, the kiwi psyche has been knocked. The weirdness of the pandemic was followed directly with a period of high interest rates designed to squeeze out inflation. Then followed a recession that the Reserve Bank (RBNZ) admitted to deliberately engineering, which floored our economy.
Interest rates have now come down but this hasn't been coupled yet with a widespread desire from people to rush out and start spending money again.
It's impossible to know individual financial circumstances. No doubt significant numbers of people 'caught' taking big mortgages right as interest rates started heading through the roof have done it tough and continue to do so.
And more recently, even as interest rates have been coming down, unemployment has risen, to 5.3% as at the September quarter, and this has provided financial duress for those losing jobs, while those still in work are watching their pennies and worrying if they might be next for unemployment.
However, I would also say there's a reasonably large group of us who aren't particularly affected financially, but who have nevertheless been influenced by our surroundings and have assumed super cautious behaviour anyway. We have retreated into our shells.
The Reserve Bank even commented on this in its October Official Cash Rate review, noting "cautious behaviour" by households and businesses and "a risk that excess precaution from households and businesses dampens consumption and investment by more than currently assumed".
As we head towards the end of 2025 the environment is looking better and what we could do with in the early months of 2026 is a nice period of stability to see confidence rise, spending rise and the economy start to tick over again.
But this is where I think that, frankly, having an election in the coming year is rotten timing.
By the very nature of what they are, elections tend to encourage cautious behaviour. That's logical enough, because depending on the result, we can see different policy mixes in play.
What happens to confidence in the face of the election campaign?
However, for a good many elections there wasn't really that much difference between the major political parties. They might argue differently, but for a good time there our electoral landscape was dominated by a rush to the centre for both parties in order to get sufficient votes.
It was somewhat different last time and then since 2023 there's definitely been a hardening of the battle lines between The Left and The Right. That's why I think this upcoming election could have an outsized impact on the year.
In the immediate aftermath of the October 2023 election and winning majority for National, ACT and NZ First, I was gobsmacked when the ANZ Business Outlook recorded business confidence reaching its highest level since June 2017 - shortly before a Labour-led government came in. So, before a new government had even been formed, it was enjoying more support from business than the other lot had in about six years.
Now we can certainly argue about some politicking going on, which is why the 'business confidence' measures in isolation need taking with generous doses of salt. But it does surely give some indication of how people think as well and how decisions they may or may not make are coloured by how they feel. And the point is, this flows the other way. How will those who so quickly applauded "the right government" (take that whichever way you want) coming in to power react in 2026 if the opinion polls start to suggest the next government might not be led by National?
Ultimately people running businesses have to be pragmatic and deal with the government of the day, so once an election result is known folk will just get on with things. But my concern centres around the election build up and campaign, which let's face it, will be in front of us for most of the year.
I've been very pleasantly surprised how well the coalition has stuck together and worked, but we can't assume that will carry on through election year - not as things ebb and flow in the opinion polls. And the same goes on the 'other side' - what sort of ructions might there be in terms of forming a Left bloc?
What if the election is close?
There's some interesting 'chicken and egg' thinking we can develop, which says that if the economy IS starting to pick up well in 2026 then the coalition may just cruise to a win. But that would require a pick-up in the economy to show through strongly enough, early enough. And if it doesn't then the coalition may struggle in the polls.
So, if the election next year is close, and at the moment it looks as though it might be, we could see businesses hesitant to spend. Uncertainty is the killer for business. It is hated.
The election therefore could be the dominating factor in the coming year. I hope I'm wrong. And I hope that at least in the early months of the year we can get on and start to see some visible evidence of recovery.
One early thing I'll be watching as we move into 2026 is how retailing goes over the key Christmas period and beyond. Sitting writing this in early December, it doesn't appear as though it's going to be a great Christmas for retailers who've been really struggling. But who knows. We may be surprised.
If it is a good Christmas for retailers that might get the whole country heading into the New Year on the right foot.
And, okay, if we are going to talk about getting NZers in a good mood, what does happen with the housing market in 2026?
Activity levels in the housing market very much returned to 'normal' in 2025 after a big drop-off following the ending of the pandemic boom. But contrary to forecasts, and this has been the case for the past two years, there was no discernible rise in prices.
The first thing to watch out for in the New Year then is how quickly the current overhang of properties for sale reduces - if indeed it does. Theoretically house prices would start to move up once the overhang is reduced. But what about the demand side of the equation?
What happens with migration?
There's going to be a lot of intertwined things worth following in the coming year. One of these is migration, which in turn is inter-linked with what's happening in the labour market, which in turn is linked with the extent to which we turn on the tap with spending again.
After a big migration bulge following the pandemic, the net numbers have dwindled. In part though this has been because so many Kiwis have been leaving. New Zealand had a net migration gain of 12,400 in the September 2025 year, down from a net gain of 42,400 in the September 2024 year, and 132,700 in the September 2023 year, according to provisional estimates released by Statistics NZ.
With such relatively slow population growth in the past year, little wonder then that rents have risen slowly if at all too. According to Stats NZ's Selected Price Indexes, for the year to October the 'stock' measure of existing tenancies rose just 1.6%, which is the slowest rise in about 15 years.
Such figures would of course theoretically be putting pressure on yields and therefore would suggest the environment's not great for buying investment properties. But of course, and this is something I've always wondered about, it's fair to ask what is the proportion of 'real', yield-driven property investors versus the so-called 'specuvestors' who, sure, will happily pick up some rental income, but are looking for capital gain.
The suspicion would be that the specuvestors are probably largely absent at the moment and will be till they see signs of rising prices.
So, I have a number of interlinked questions here. Will large numbers of Kiwis keep leaving this year? Will more inbound migrants come in? Well, the latter question will depend a fair bit on whether the labour market starts to strengthen. The early signs are that the situation is stabilising, but the RBNZ is forecasting unemployment will only slowly drop, to 4.9% by the end of 2026 and 4.5% by the end of 2027. Assuming the labour market does begin improving, will the current government be making more efforts to increase inbound migration?
If the rate of population increase starts to pick up again, this will increase demand and so we will see more spending, we will see more pressure on rents and this may well stimulate the housing market. A lot of ifs and buts though. And I do wonder if (finally, you might say) the importance of property as an investment in New Zealand is just starting to recede a little? Maybe a dose of rising prices would see us all 'revert' again, but maybe things are changing?
Might inflation be a factor again?
The final thing I should mention, though, goodness knows, I don't really want to, is inflation. At time of writing our annual rate of inflation is sitting right at the top of the RBNZ's 1% to 3% target range. The expectation is that it will come down - our current reluctance spend and 'spare capacity' in our economy could both ironically contribute to that happening. But it will be one to watch. Frankly, it doesn't really bear thinking about what could happen if inflation was to continue to rise.
But so much of everything in the coming year will relate back to confidence, and that's just when we look at domestic issues. The administration in the United States remains capricious, while the overall world situation looks volatile. So further external shocks are entirely possible.
For me then the story of 2026 will all come back to confidence. Will individuals feel comfortable going out and spending again? Or will they stay in their shells? For businesses, will they have the confidence to invest more? And to hire more staff? Can they confidently see a profitable path forward?
A lot to ponder on. And just the sort of environment in which we don't need the added uncertainty of an election campaign.
My review of 2025 can be accessed here.
*This article was first published in our email for paying subscribers early on Thursday morning. See here for more details and how to subscribe.
26 Comments
Thanks for a well balanced article David. Reckon it would be a very unpopular decision if the govt let more immigrants in at a time of high unemployment.
An article about politics, rentier economy and if there's any black magic which can morph the word Ponzi into Phoenix
No issue with David - always pertinent analyses -, but it's a sad state of affairs that these are the things on top of mind for regular Kiwis. Sir Paul Callaghan still spinning in his grave as always
Yes, I dream of a day when this 'next year's outlook' article is about what exciting things will innovative businesses come up with next year
Until then, sleep well and keep doing what you're doing, NZ economy
I'll be voting for democracy, again. The economy, house prices, unemployment etc is just background noise.
OK, so which party do you see as being most democratic?
OK, so which party do you see as being most democratic?
Sums it all up doesn’t it. Well considered and reasoned. Come the time, wonder if the electorate will be likewise.
Confidence? You might be very confident but still not go out spending spending.
Reducing spend below income is a very productive play. Capital builds and benefit snowballs. It takes off exponentially.
Be confident, build capital, build ownership. Which in turn builds confidence.
It looks more than a bit desperate to use immigration to prop up an illusory growth, as our per-captia productivity keeps dropping and we can't work out how to create a basic infrastructure that's able to cope with the people here now.
And regarding the election: I've been reduced to voting for who I dislike least.
I'm interested to see what (previously TOP) Opportunity announces for their campaign as they were the most reasoned party IMO in the last election that were a viable alternative to the blue and red. ACT were promising until around1 year pre-election where Seymour swung too far right and aligned too heavily with national which lost my support, otherwise he did well with the end of life legislation. I feel NZ is ready for a change in how we operate and need to tax capital more than income, despite income being the easy target.
Largely still LVT (Land Value Tax) probably revenue neutral with income tax relief and UBI (Universal Basic Income), maybe capped at the high end of wealth. One quirk is that they're going for a flat tax rate for income
Otherwise, still both business and environment focussed, hence the teal colour
Here's the new leader with Jack Tame: https://youtu.be/l9dZAl7kNPA?t=4m46s
Policies: https://www.opportunity.org.nz/platform
Yes I saw the interview, but it'll be interesting to see the ins and outs of the policy details as no doubt they will be extensively grilled on the machinations of it all to gauge credibility.
I looked at TOP too, but my interactions, including with the then leader, convinced me that they are going to remain a historical footnote unless they become lesser ideogues and develop some understanding of human nature.
Despite some good ideas, politics is the art of the possible, and their manichaen absolutism just doesn't seem to get that, so my perception is of blinkered immaturity.
An original founder of TOP might agree with you
Great article David. The three year election cycle isn’t long enough. Campaign mode will kick off before we know it. It feels like even just come out of the last campaign. Less time campaigning and more time to have a real crack at running an economy with direction is needed.
Is the 3 year cycle the issue? Or is it that major parties unwind the work of the last instead of redirect or build on them? If we have cross party agreement on core issues such as infrastructure and healthcare, then surely 3 year terms are immaterial.
But not without more protections, right, like binding referendums and recall legislation?
It's a sad situation where an increase in house prices and growth in immigration are given high importance.
I'd like to see action on providing stability for electricity costs that are affordable for domestic manufacturing businesses.
The only difference between this time last year and now is 130 basis points less in interest rates. Sentiment is pretty much the same.
The weirdness of the pandemic was followed directly with a period of high interest rates designed to squeeze out inflation. Then followed a recession that the Reserve Bank (RBNZ) admitted to deliberately engineering, which floored our economy.
Imagine if we didn't buy into the Covid hype and just kept living our lives normally, no lockdowns, no restrictions, no money printing, no lowering of the OCR 0.25%. Sure, some weak people would have died, but we would be living a relatively normal life now, with a lot less debt, less inflation, and less struggle.
Like Sweden?
Sweden were a little less prescriptive than other countries but still had restrictions. I suspect if you integrated under the curve of their 'stringency index' curve (figure 4), they were more heavily restricted than us.
https://www.covid19lessons.royalcommission.nz/reports-lessons-learned/m…
And looking at Figure 2 on excess deaths, we probably would have seen an extra 10-20 thousand deaths in New Zealand (10k if we had results like Sweden, 20k if we were more like the UK/USA). That's over ~3 years in a context of our normal 50-60k deaths per year.
I struggle to accept models saying about excess deaths given it can't be proven and all methodologies can be flawed. It's akin to saying if I drive one week less per year I save 3 lives over the course of my lifetime given the risk of death by traffic accident, when in fact there's no way to prove this other than correlating data. Correlation however, is not causation.
I'd imagine we had less deaths than normal given lockdowns for rest homes keeping the oldies form getting the usual winter bugs which would cause death across the country regardless.
If you prefer you can look at deaths attributed to Covid elsewhere in the world and get a very similar picture. Yes we certainly avoided other deaths e.g. from flu which basically died out here for a year or two. On the other hand, some other deaths increased - part of the response to the pandemic was an increase in risk-taking behavior meaning more deaths from car crashes, more smoking etc which will in time cause deaths.
Plus the delayed diagnoses and treatments during lockdown (although of course if the pandemic had let rip we'd have seen similar due to overwhelm of the health system)
Plenty of accounting to be done for whether the lock downs were 'worth it' overall and I don't know which way that falls. Probably depends how you value lives vs society vs public debt vs education etc. On the narrow goal of saving lives, I think it's hard to imagine a better result than ours except some tweaking on stronger borders and locking down sooner.
Plus the delayed diagnoses and treatments during lockdown (although of course if the pandemic had let rip we'd have seen similar due to overwhelm of the health system)
That's an interesting one.
I know of a mother in their 30's who dies as they had scans for cancer delayed by 6-9months (due to lockdowns) and by the time they got them done, tests etc it was stage 4 and they were given months to live, leaving behind a husband and two young children. While it is easy for some to argue that the health system would have been overwhelmed, I struggle to see any guarantee of this given our low population relative to other countries, yet we have seen some genuine horrific situations as above all in the name of saving lives. Was it worth it? Most will rationalise it as saying we did better than others, saved lives etc, but for many with heart conditions due to mandates, and others who had situations as above, it is something that is real, and will scar them for the rest of their lives. Nobody however seems to acknowledge these situations as preventable and caused by government choices.
Yes there was a real cost. I would argue that without the mandates there would be more heart conditions around today - see the link below about the risk from covid being much greater than the vaccine. That said, I was a little uncomfortable with the mandate even though I supported widespread vaccination of adults.
On the overwhelm, it's hard to say but other counties with much better resourcing and funding did very overwhelmed. Our health system runs on a shoestring budget and the spare capacity in emergency care at the start of the pandemic was scary. The absolute population is largely irrelevant - as a proportion of GDP we don't spend much on public health.
edit: excuse the multipost, phone trouble
Yes there was a real cost. I would argue that without the mandates there would be more heart conditions around today - see the link below about the risk from covid being much greater than the vaccine. That said, I was a little uncomfortable with the mandate even though I supported widespread vaccination of adults.
On the overwhelm, it's hard to say but other counties with much better resourcing and funding did very overwhelmed. Our health system runs on a shoestring budget and the spare capacity in emergency care at the start of the pandemic was scary. The absolute population is largely irrelevant - as a proportion of GDP we don't spend much on public health.
Even more drastic than Sweden, just an total ignorance of Covid.
There’d be a lot less myocarditis and cancer
Studies have consistently shown the risk of myocarditis from covid infection to be significantly higher than the risk from the vaccine. Here's one: https://pmc.ncbi.nlm.nih.gov/articles/PMC9467278/
Bought to you by Pfizer.
Jacinda would probably not have had books and movies about her made.....
I really really don't like this coalition and i have a special loathing of ACT, but the alternative looks even less appealing. Whatever the polls say, my best guess is that with a (slightly) better economy, this bunch will be back, but hopefully, with ACT playing a very subordinate role.
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