International events are sometimes more newsworthy than domestic events, even when the local situation is of high importance. For this reason, the steel industry is paying close attention to Donald Trump´s shenanigans with his “on again, off again” tariffs. The effect his tariffs might have on the global economy generally and the steel world in particular is yet to be seen – and may take twists and turns as 2025 progresses. However, the most likely overall effect is that Trump´s capricious nature will subdue business confidence and may lead to a slowdown in economic activity. This would be unwelcome news given that New Zealand´s GDP was already negative in the last official quarter (September 2024). And a bad situation has been made worse by the release this week of figures from Stats NZ which show that unemployment has risen to 5.1% and that, in the year ended December 2024, there was a 9.8% drop in the number of homes consented, compared with the year ended December 2023. 

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Overall, there were 33,600 new homes consented in NewZealand during 2024. The five regions with the highest number of new homes consented were: Auckland with 13,939 (down 10% compared with the year ended December 2023); Canterbury with 6,544 (down 6.0%); Waikato with 2,755 (down 22%); Otago with 2,338 (up 19%); and Wellington with 1,833 (down 24%).

Clearly, the health of the steel industry is affected greatly by the well-being or otherwise of the home construction sector. And in this regard, the steel business has borne the brunt of New Zealand´s economic downturn more than most. In its Budget Policy Statement 2025, the NZ Treasury said that since the September quarter of 2022 per capita GDP has fallen 4.6%, making the current downturn a deeper per-capita recession than the global financial crisis. It noted that tight monetary policy was implemented to bring down inflation, which peaked at 7.3% in 2022, and that high interest rates had constrained demand. As a result, economic growth has been low or negative in successive quarters. Specifically as it relates to construction, the effect of all that can be seen in figures released by Stats NZ in late January. It noted that in the 12 months to December 2024 the construction industry lost 12,745 jobs or 6.1% of its workforce.

Fortunately, the Treasury believes a turning point has been reached. In its Half Year Economic and Fiscal Update (HYEFU) issued in mid-December, it said: “Annual inflation is back in the target band, and close to the 2% midpoint. The Reserve Bank of New Zealand has begun reducing interest rates, with the Official Cash Rate down 125 basis points since August. As interest rates fall, household spending and business activity is expected to lift. The HYEFU forecast shows an economic recovery, with growth strengthening over the next year and beyond, and unemployment declining from mid-2025.” The Treasury went on to predict that economic growth would start to pick up in the first half of 2025, and real GDP could be expected to grow by 0.5% in 2024/25. It then expects economic growth to accelerate to 3.3% in 2025/26, supported by lower interest rates.

This optimism chimes with the view of Satish Ranchhod, senior economist at Westpac Bank. He is the resident NZ expert and commented in late January that: “We´re also starting to see some more positive signs in the housing market, with prices up 0.2% in December. That small lift in prices came on the back of some particularly light activity in the housing market over the end of the year. With evidence of a lift in loan applications and increasing open home attendance, we expect this to translate to more support for prices over 2025.”

However, before anyone gets too carried away by these early green shoots, the Treasury also said in its HYEFU: “The pace of the recovery is limited by the economy’s supply capacity, with weakness in labour productivity expected to continue. As a result, economic growth slows to 2.4% in 2028/29.” For this reason, the Treasury has revised down its productivity forecasts over the past year. The combination of all these economic factors is that it´s widely expected the Reserve Bank of New Zealand will cut its Official Cash Rate by a further 50 basis points at its February 19 meeting. The combined cuts of 125 basis points since last August have been especially welcomed by the steel industry which had been battling against high material costs. Not only is headline inflation now at 2.2%, but the more relevant core inflation is also declining. Trimmed mean inflation hit 2.4% in the year to last December and weighted median inflation has come down to 2.6%. Mind you, how this all plays into the Trump tornado is anybody´s guess.