How does macroeconomic uncertainty impact the New Zealand economy?

Key findings

• An increase in economic uncertainty leads to a reduction in New Zealand’s business investment, the production of goods and services, household consumption and raises the unemployment rate, our modelling shows.
• This Analytical Note assesses the impact of macroeconomic uncertainty on New Zealand’s economy. Increases in uncertainty can impact the economy through several channels, with the strongest impact on business investment. When various measures of uncertainty are unusually high, firms tend to delay or cancel investments until the outlook becomes clearer.
• We consider a range of global and New Zealand-specific measures of economic uncertainty, for example disagreement around economic growth forecasts, or indicators of share market volatility to assess the impacts on New Zealand businesses and households. Uncertainty tends to rise significantly during economic downturns, such as the Global Financial Crisis, or following major policy shifts like the tariff increases proposed in April.
• After a shock from an unusually high level of uncertainty (one standard deviation), we estimate that the average peak impact is a fall in output (-0.24 ppt), household consumption (-0.2 ppt) and business investment is most affected (-1.3 ppt). This is not an estimate of the likely effect in New Zealand of recent US tariffs. 

Why we did this research

This Analytical Note enhances our understanding of how macroeconomic uncertainty affects New Zealand’s economy, including the transmission channels, to better inform our economic projections. The analysis presented in this Note underpinned chapter 4.1 of the May 2025 Monetary Policy Statement.

May Monetary Policy Statement (PDF, 5MB)

Since New Zealand is a small open economy, heightened global uncertainty can influence sentiment and decision-making for New Zealand firms and households. Global economic uncertainty, and in particular trade policy uncertainty, increased significantly during the first half of 2025. Some measures of uncertainty reached their highest levels since the early stages of the COVID-19 pandemic. This Note supports our understanding of how uncertainty shocks can transmit through New Zealand’s economy.   

What data have we used? 

The models in this Note are estimated using data from 1997 Q1 to 2019 Q4. The table below lists all the data series and their sources that are used to estimate the models.