Market Commentary: April 2025 The Trump Factor, Tariffs, and Trade Tensions
Global markets have been thrown into renewed turbulence following Donald Trump’s return to the U.S. presidency.
His announcement of sweeping “Liberation Day” tariffs has sent shockwaves through capital markets, igniting the most serious trade conflict seen in decades. The reassertion of his “America First” doctrine — characterised by aggressive tariff policy and heightened geopolitical brinkmanship — has added a significant layer of uncertainty to the global trade environment.
While New Zealand has so far faced a relatively modest 10% tariff on select exports, the broader implications of a reignited trade war are concerning. As a small, exportreliant economy, New Zealand is particularly vulnerable to the second- and third-order effects of reduced global trade volumes, disrupted supply chains, and shifting investor sentiment.
Although the U.S. economy remains superficially resilient, recessionary indicators are intensifying. Inverted yield curves, softening labour market data, and slowing consumer activity are flashing warning signals. If the U.S. economic engine begins to sputter, the knock-on effects for global markets — including New Zealand — could be material.
New Zealand Economy: Turning a Corner Amid Global Headwinds
The New Zealand economy appears to be slowly gaining traction. Q4 2024 GDP growth of 0.7% suggests a modest but meaningful recovery after a difficult stretch.
However, the global backdrop remains volatile, and 2025 is shaping up to be a year of cautious optimism, rather than robust rebound.
Domestic Recovery Gaining Traction
Encouraging signs are emerging. Consumer confidence is stabilising, and business sentiment has improved incrementally. Government efforts to stimulate growth — highlighted by the recent New Zealand Infrastructure Summit — have bolstered messaging that the country is “open for business.” These initiatives are beginning to translate into improved investor sentiment and higher engagement levels.
Recent changes to immigration policy, particularly the retooling of the Active Investor Plus (AIP) visa scheme, are expected to boost inward capital flows and support domestic demand — especially in key sectors like housing, construction, and services.
Geo-Politics and Shifting Alliances
In Europe, the tentative progress in Ukraine peace talks has been cautiously welcomed, though many observers note that Ukraine is under pressure to accept terms that may disproportionately favour Russian interests. Still, even a fragile peace would ease geopolitical risk and help stabilise energy markets.
Meanwhile, the global balance of power appears to be tilting. With the U.S. increasingly focused on inward looking policy, space has opened up for other major powers to exert greater influence. For New Zealand, this reordering brings both risk and opportunity — particularly as trade relationships shift and new alliances are tested.
Amid this uncertainty, the current government has moved to deepen international ties, including the signing of a free trade agreement with the EU in 2024. Ongoing trade missions to India and Southeast Asia underscore efforts to diversify economic partnerships and reduce exposure to traditional trading partners.
Interest Rates: Easing Cycle Gathers Momentum
In February, the Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by 0.5% to 3.75%, with further cuts of 0.25% forecast for both April and May. This would bring the OCR to 3.25% by mid-year, aligning with market expectations of a gradual but meaningful easing cycle.
While bank lending rates typically lag changes in the OCR due to broader funding market dynamics, these cuts are beginning to filter through. Lower interest rates should support household and business activity, though global inflation trends, geopolitical risks, and trade disruptions remain key swing factors.
Outlook: Fragile Recovery Amid Global Volatility
2025 may prove to be a transitional year for New Zealand. Domestically, conditions are improving, supported by steady GDP growth, easing rates, and immigration-led demand. However, the fragile state of global markets — particularly in light of U.S. protectionism and geopolitical instability — could yet stall or reverse progress.
Bottom line: While New Zealand is on the path to recovery, external risks loom large. Adaptability and strategic resilience will be essential for investors and businesses navigating the months ahead.
NZ Property Market Review: March 2025
The New Zealand property market is beginning to show signs of recovery, helped by the February OCR cut and the prospect of further easing.
In the residential sector, a large overhang of unsold stock remains a headwind, the result of high interest rates and subdued buyer demand over the past year. However, there are now indications that this stock is beginning to clear, as lower mortgage rates and improved buyer sentiment start to take effect.
In the commercial real estate (CRE) sector, investors remain cautious but increasingly engaged. Enquiry levels have picked up, although transactions are still limited as buyers seek clarity around rates, valuations, and tenant demand.
That said, many market participants expect a rebound in deal flow in the second half of the year as borrowing costs fall and macro conditions stabilise.
Portfolio Overview – March 2025
We are pleased to report that distributions across all Syndicates and Funds managed by First Light Capital have increased, supported by the recent reduction in the OCR and improving liquidity conditions.
While wholesale bank funding costs adjust gradually, we continue to work closely with our banking partners to ensure improved pricing is passed through as quickly as possible.
Liquidity remains a key operational focus. With early signs of strength in the residential market and growing transactional interest across the CRE sector, we anticipate improved liquidity in our funds and syndicates over the coming quarters.
In parallel, we are exploring operational improvements, including alternative registry platforms to streamline investor transactions and enhance service delivery.
As always, we remain committed to delivering strong, consistent returns and to actively managing your investments in response to both domestic progress and global complexity.