6.1 The big picture: the macroeconomic story Te tiro whānui: te kōrero ōhanga-matua
The big picture: the macroeconomic story | Te tiro whānui: te kōrero ōhanga-matua
This section presents data about some key New Zealand economic indicators during the pandemic – such as retail sales, savings and investment, inflation and debt, comparing across time and with comparator countries.
6.1.1 The size of the COVID-19 economic shock | Te rahi o te rū ōhanga KOWHEORI-19
Figure 62 shows how the immediate impact of COVID-19 on the economies of New Zealand and our comparator countries, in terms of a drop in real GDP per capita. New Zealand's economy was not as affected by the pandemic as were some comparator economies.
Figure 62: Real GDP per capita, 2005–2024
PPP adjusted, 2021 international dollars
Source: World Bank: ‘International Comparison Program’, https://www.worldbank.org/en/programs/icp/data
Closing the borders and restricting the internal movements of people through lockdowns in early 2020 had a large and immediate impact on the New Zealand economy. Figure 63 shows the level of retail trade (orange dashed line) and quarterly change in sales (green line). Retail trade volumes fell by 17.7% ($3.9 billion in 2010 prices) in the June 2020 quarter. This was more than six times the largest quarterly drop in sales in the previous two decades, including the Global Financial Crisis. However, this drop was short-lived. Trade bounced back the following quarter, growing by 27.6% ($5.6 billion). There was a similar drop and bounce back during the 2021 Auckland lockdown, although smaller as the whole economy was not affected. This pattern is consistent with consumers delaying spending. Overall retail sales, when averaged over time, changed relatively little.
After the second bounce-back at the end of 2021, retail trade began to slowly decline in real terms. By the end of the June quarter of 2025, the volume of retail trade was still 8% ($2.1 billion) lower than its previous peak in the June quarter of 2021.
Figure 63: Retail trade volumes in New Zealand, Q1 2003 to Q2 2025
Retail trade volumes: levels ($m, seasonally adjusted, 2010 prices) and changes (% quarter-to-quarter)
Source: Reserve Bank of New Zealand, ‘Consumption (M2)’, last updated 18 December 2025, https://www.rbnz.govt.nz/statistics/series/economic-indicators/consumption
Notes: Retail sales volumes expressed in September 2010 quarter prices.
Previous adverse economic events provide a useful comparison for the scale of the economic shock experienced during the pandemic. Figure 64 shows economic growth in terms of changes to GDP per capita from 1947 to 2025; some of the larger economic shocks. Measured in terms of change in per capita GDP, the economic shock from the pandemic in 2020 was the largest that New Zealand had experienced post the Korean War. However, its immediate impact on GDP per capita was short-lived.
Figure 64: The COVID-19 pandemic economic shock compared with 75 years of New Zealand recessions
Change in real GDP per capita, Q1 1947 to Q2 2025
Source: New Zealand Institute of Economic Research, ‘Data 1850’, https://www.nzier.org.nz/data-1850
Figure 65 shows how capital investment in the economy differed between the 2008–2009 Global Financial Crisis and the COVID-19 pandemic. Capital investment reflects business confidence in the future, and the availability of capital to invest.
Capital investment fell significantly during both the Global Financial Crisis and the COVID-19 pandemic. Investment took many years to return to its previous level after the Global Financial Crisis, when business confidence took some time to be regained.
The investment pattern during the COVID-19 pandemic was different. Capital investment fell by 21.7% in the second quarter of 2020, before bouncing back to almost the same level in the following quarter. Investment then grew for a couple of years, before beginning to fall from the final quarter of 2022.
Figure 65: Real investment patterns in New Zealand, Q1 1990 to Q1 2025
Real GDP and gross fixed capital formation, chain-weighted, 2009/10 prices, seasonally adjusted, quarterly
Source: Stats NZ, National Accounts
Notes: Chain-weighted data adjusted for inflation using a weighted average of prices in each period.
6.1.2 Prices and inflation | Ngā utu me te pikiutu tukipū
COVID-19 created a supply-side shock to the economy.23 Production slowed or stopped because workers were ill or unable to travel, or their workplaces were closed. Supply shocks can be followed by periods of inflation as demand for goods and services picks up that cannot be met by supply. Figure 66 shows that prices rose after the 1918–1919 influenza and COVID-19 pandemics. Consumer prices rose by over 12% as the New Zealand economy picked up after the 1918–1919 pandemic. Due to disruption to supply as a result of World War One, the economy was already experiencing inflation.
Although prices also rose during the COVID-19 pandemic, inflation was much lower compared to 1918–1919.
Figure 66: New Zealand inflation, 1900–2024
Annualised changes in consumers price index, percent
Source: New Zealand Institute of Economic Research, 'Data 1850', https://www.nzier.org.nz/data-1850
Figure 67 shows how inflation in New Zealand compared with other countries and the OECD average. All countries experienced a period of low inflation in 2020, as economies slowed. Inflation increased in 2021, peaking in 2022. New Zealand's inflation peaked at around 7% per annum, a lower rate than the other countries in this Figure. By contrast, Italy and Sweden experienced inflation above 11%.
Figure 67: Inflation, selected OECD countries, Q1 2000 to Q2 2025
Quarterly consumers price index inflation (prices relative to one year prior)
Source: Organisation for Economic Co-operation and Development, ‘Inflation(CPI)’, https://www.oecd.org/en/data/indicators/inflation-cpi.html
House prices
While New Zealand experienced relatively low inflation in goods and services during 2020, there was inflationary pressure in the housing market. House prices surged between the middle of 2020 and the end of 2021 (Figure 68). New Zealand's house prices rose by one-third over this period, from an already high base.24
Figure 68: House prices, selected OECD countries, Q1 2010 to Q2 2025
Quarterly house price index (2019=100)
Source: Organisation for Economic Co-operation and Development, National and regional house price indices
Figure 69 shows that house price inflation during the COVID-19 pandemic was very different from preceding adverse economic shocks. Housing investment (that is, new builds and renovations) rose during the pandemic, after an initial dip. By contrast, housing investment fell substantially in both the Asian Financial Crisis and the Global Financial Crisis (GFC). Similarly, house prices jumped sharply during the pandemic, whereas they were static in the Asian Financial Crisis and fell during the GFC.
Figure 69: House prices and housing investment in New Zealand, Q1 1990 to Q1 2025
House price index and real residential investment ($000s)
Source: Reserve Bank of New Zealand, ‘Housing (M10)’ (last updated 13 January 2026), https://www.rbnz.govt.nz/statistics/series/economic-indicators/housing
Other components of inflation
Figure 70 provides further detail about the components of inflation in New Zealand. Transport prices, and petrol in particular, are typically highly cyclical; they were a major source of inflation (and deflation) during the pandemic. Petrol prices reflected fluctuating world oil prices, which fell in 2020 due to reduced demand as lockdowns were imposed across the world.
Figure 70: Selected components of CPI inflation in New Zealand, Q2 2000 to Q2 2025
Source: Reserve Bank of New Zealand, ‘Prices (M1)’ (last updated 13 January 2026), https://www.rbnz.govt.nz/statistics/series/economic-indicators/prices
New Zealand's inflation was not solely a domestic phenomenon. Figure 71 separates the tradable and non-tradable components of goods and services inflation in New Zealand.
In the latter part of the previous decade, relatively cheap tradable goods and services (particularly imports) kept prices low for New Zealand consumers. In 2021, inflation in tradables surged ahead of non-tradables, driven in part by disruptions to international supply chains caused by the pandemic. Inflation in tradables then dropped to near zero yet inflation in non-tradables has persisted through 2025.
Figure 71: Tradable and non-tradable components of CPI inflation in New Zealand, Q1 2015 to Q2 2025
Source: Reserve Bank of New Zealand, 'Prices (M1)', last updated 13 January 2026, https://www.rbnz.govt.nz/statistics/series/economic-indicators/prices
6.1.3. Savings | Penapena pūtea
When sales dropped sharply in 2020 and 2021 (see Figure 63), households entered a period of saving (Figure 72). This may be either forced saving because of not being able to spend, or precautionary saving because of uncertainty about the future.
Figure 72: Household savings in New Zealand, 1987–2024
Household savings as a percentage of income
Source: Reserve Bank of New Zealand, 'National saving – M6 (1972 – current)', last updated 14 November 2025, https://www.rbnz.govt.nz/statistics/series/economic-indicators/national-saving
Notes: Net saving is equal to gross household disposable income less household final consumption expenditure and consumption of fixed capital.
National savings – the sum of savings by organisations, households and government – also surged in 2020 (Figure 73). Business and household saving surged in 2021, but this was offset by government dissaving (that is, borrowing to cover expenses exceeding revenue) in 2021 and the following year. Government expenses had grown to finance the pandemic response and to fund other programmes intended to stimulate the economy more generally.
Figure 73: Components of total savings in New Zealand, 1999–2024
Savings ($ billions)
Source: Reserve Bank of New Zealand, 'National saving – M6 (1972 – current)', last updated 14 November 2025, https://www.rbnz.govt.nz/statistics/series/economic-indicators/national-saving
6.1.4. Government debt | Te nama kāwanatanga
Government debt, as a proportion of GDP, fell from the early 1990s until 2008.25 The Global Financial Crisis, followed by the Canterbury earthquakes, saw it climb over five years to around a quarter of GDP. From 2013 until the pandemic arrived in 2020 (Figure 74).
Figure 74: Net core Crown debt as a proportion of GDP in New Zealand, 1972–2042
Actuals (per definitions used before and since 2009) and Treasury projections from 2022
Source: The Treasury, Te Ara Mokopuna: Treasury Long-term Insights Briefing (August 2025)
New Zealand's general government net debt has been low by international standards for the past two decades (Figure 75). By contrast, Australia's government debt has climbed consistently since 2007, and Canada is unusual in that it has seen its government debt fall substantially since 2010. New Zealand's government debt remains lower than the average for advanced economies.
Figure 75: Government net debt as proportion of GDP, 1990–2030
Actual and projected general government net debt as % of GDP, selected countries and groupings
Source: The Treasury, Te Ara Mokopuna: Treasury Long-term Insights Briefing (August 2025)
23 It also had elements of a demand-side shock. For a fuller discussion of the nature of the pandemic's economic shock see section 3 in Part Three, NZ Royal Commission of Inquiry into COVID-19 Lessons Learned: Phase Two Main Report, (2026).
24 See, for example, Demographia, 16th Annual Demographia International Housing Affordability Survey: 2020, http://www.demographia.com/dhi2020.pdf
25 Net core Crown debt hit zero in 2008, according to the definition used at the time. It was 5.4% of GDP according to the current definition.