The NZ Economy Slumps, A Stark Wake-Up Call for Construction

New Zealand’s economy shrank by 0.9 percent in the June 2025 quarter, far worse than anticipated, with 10 of 16 industries registering declines.  Statistics New Zealand data show that construction activity in particular fell by 1.8 percent in the same period, reversing momentum from earlier quarters. 

This sharper-than-expected contraction reflects a broader softening in demand for housing, reduced public spending, global uncertainty, and tighter financing conditions.  

Impacts on Construction

Weak pipeline, squeezed margins, and project cancellations With the economy under pressure, many developers and public agencies are delaying or cancelling projects. Residential construction volume has slumped, and seasonally adjusted work values have dipped from over NZD 6 billion to under NZD 5 billion in recent periods. 

Some firms are resorting to drastic discounts; quotes slashed by as much as 50 % are being reported to retain cash flow or win whatever contracts remain. 

Layoffs, apprenticeships lost, and capability erosion A recent survey indicates more than two-thirds of Kiwi builders are struggling to keep their order books full; over one-third report cancelled projects. As a result, some contractors are forced to let go of apprentices or reduce staff numbers. The consequence is not only immediate unemployment, but risk of lost skills, demotivation, and longer-term capability drain in the workforce.

Heightened business closures and insolvencies Construction firms are facing rising liquidation rates. The number of construction-coded firms entering external administration has surged in recent years, pointing to structural stress rather than a short-term blip. 

Disproportionate pain for SMEs Small and medium contractors are bearing the brunt. In a civil construction industry survey, 60 % of respondents were SMEs (1-50 staff). Of those, 27 % expect revenue declines in 2025, triple the rate seen in earlier cycles. Many cite the lack of certainty in project pipelines and funding as their biggest obstacle.  In summary, cash flows are tighter, risk is rising, competition on price is fiercer, and the survival of many smaller players is under direct threat.

Who Suffers Most (Within Construction)

• Subcontractors and trade contractors (carpentry, plumbing, electrical, finishing) often have limited control over pricing and schedule changes; when head contractors reduce scope or delay, they feel it first.
• New entrants, apprentices, and junior staff are most vulnerable to layoffs.
• SME general contractors with thin capital buffers suffer severely from delayed payments, margin compression, and cost overruns.
• Firms exposed to residential work tend to be more vulnerable, given the sharp weak spot in housing demand and developer caution.
• Firms lacking diversification or institutional relationships (i.e., limited in scale or relationships with government/infrastructure bidders) have fewer fallback opportunities when private work dries up.

What Construction Professionals Can Do to Weather & Improve the Situation

Although headwinds are strong, proactive steps can help firms survive, and potentially emerge stronger:

1. Strengthen financial resilience

1. Tighten cash flow control, including more aggressive receivables management.
2. Revisit overheads, non-core costs, and staffing levels with flexibility in mind.
3. Build contingency reserves, even small ones, to buffer short delays.

1. Diversify work mix

1. Pursue public/infrastructure projects, maintenance & repair, retrofit, remediation, and resilience works (rather than speculative new builds).
2. Explore allied sectors (e.g., civil works, utilities, stormwater, climate adaptation) that may hold steadier demand over housing.
3. Collaborate across disciplines or partner with firms specializing in different sectors to access joint opportunities.

1. Differentiate through value, not just price

1. Emphasize reliability, quality, safety, sustainability, and reputation.
2. Use digital tools (BIM, project management software, data visualization) to reduce waste, improve communication, and offer clients greater certainty and transparency.
3. Offer risk-mitigated contracting models (design & build, fixed-price with clear scope, phased delivery) that reduce client uncertainty.

1. Be present in future pipelines

1. Engage with local and central government planning bodies to anticipate infrastructure projects, understand consenting cycles, and advocate for clarity in pipelines.
2. Stay informed about policy shifts, government capital allocations, and budget announcements relevant to building/infrastructure spend.

1. Invest in skills, retention, and adaptability

1. Protect core staff during the downturn if possible; losing institutional knowledge is costly.
2. Upskill on digital methods, sustainability, materials innovation, and emergent practices (e.g., modular construction, offsite prefabrication).
3. Foster cross-training (so people can shift roles) and maintain apprentices or junior roles even in lean times, where possible.

1. Collaborate & scale smartly

1. Where possible, pool resources or share risk among peers (equipment sharing, joint bids).
2. Seek strategic alliances or mergers for capacity, access to finance, or geographic reach to broaden margins.
3. Leverage industry associations for knowledge, advocacy, shared training, and collective action.

1. Communicate value & manage client relationships

1. Be proactive with clients: explain cost pressures, timelines, and value trade-offs.
2. Build trust through clear contracts, transparent costs, contingency clauses, and communication.
3. Offer phased or staged engagements to ease client commitment, improving the chance of project continuation.

The contraction in the NZ economy acts as a stress test for the construction sector, particularly for small and medium players. Those who adapt, manage risk actively, and align closer to steady demand will be better positioned to survive, and to lead in the recovery.

Sources

• Statistics NZ / GDP & industry contraction data
• Civil Contractors NZ / 2025 Construction Survey