(Bloomberg) — New Zealand Prime Minister Christopher Luxon expects fewer citizens will leave the country as interest rates fall and the economy begins to recover from a prolonged slump.

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“We have to build an opportunity economy,” Luxon said in a fireside chat at a Bloomberg Address in Auckland on Friday. “Where as young people you can see that actually if you stay here and you work hard you can get ahead.”

A record 81,000 citizens — 1.5% of New Zealand’s 5.3 million population — left in the year through July, many heading to Australia for higher-paying jobs. The economy is on the brink of its second recession in less than two years, but the central bank began cutting rates last month, raising hopes the slump may soon be over.

“There’ll always be New Zealanders going out into the world, wanting to play on a bigger stage,” Luxon said. “That will always be a feature of New Zealand life and that’s a good thing because we’re not parochial or inward looking.”

The prime minister said it’s nonetheless critical to ensure New Zealanders feel safe in their homes and that education and health outcomes improve to encourage more people to stay.

“As the economy improves, as you see crime come down, as you see education standards go up, as you see access to health care improve, those are things where families make decisions and say this is a place where I can raise my kids and I see a great future,” he said.

Read: Fed-Up New Zealanders Are Flocking to Australia for Better Pay

New Zealand’s economy contracted 0.2% in the second quarter from three months earlier, data published on Thursday showed. The Reserve Bank projects gross domestic product will drop again in the current quarter, putting the economy back in recession.

But with inflation expected to retreat into the central bank’s 1-3% target band, the Official Cash Rate is tipped to continue to fall over the rest of this year and throughout 2025.

The RBNZ’s decision to begin easing monetary policy earlier than previously indicated has stoked expectations of a rebound. Business confidence has jumped to a 10-year high and consumer sentiment has also lifted as analysts anticipate further declines in borrowing costs.

“People are lifting their heads now that that rate cuts have actually been delivered but it will take some time,” said Jarrod Kerr, chief economist at Kiwibank in Auckland. “It takes a good nine to 18 months for rate cuts to really feed their way through the economy. So growth will be a bit more loaded into the back half of next year and then into 2026.”

On Friday, the prime minister also highlighted plans to remove red-tape, encourage investment in science and technology, including AI, and expand New Zealand’s ties with the world.

The country will continue to explore economic opportunities with the US irrespective of whether former President Donald Trump or incumbent Vice President Kamala Harris win the November election, Luxon told Bloomberg Television in an earlier interview.

The prime minister also said he plans to hold a referendum at the 2026 election on extending the parliamentary term to four years from three years at present.

Center-Right Coalition

New Zealand’s economy was shrinking in the second half of 2023, when voters ousted the previous Labour government and gave Luxon’s National Party the mandate to form a center-right coalition with the New Zealand First and ACT parties.

The economic slump extended into this year under the weight of high borrowing costs and as the new government made deep cuts to public spending, including firing thousands of civil servants.

Alongside a fiscal repair job, Luxon has faced a raft of political challenges as he delivers the pledges agreed on by the three parties that make up his coalition. Perhaps of greatest concern is the reaction to policies that critics see as “anti-Māori.”

Māori are aggrieved that Luxon will not stop the ACT Party leader David Seymour introducing legislation to define the principles of the Treaty of Waitangi, the 1840 agreement between tribes and the British Crown that is considered the nation’s founding document.

Seymour says the way the Treaty is being interpreted gives greater rights to Māori on the basis of race, which he has compared with apartheid in South Africa.

Māori Tensions

But critics are scathing of what they see as an attempt to undermine a greater voice for Māori after decades of discrimination that has resulted in them being over-represented in poverty and crime statistics. This has led to public protests, petitions and heated rhetoric that Luxon has found difficult to defuse.

“All the stuff that has been done looks like a concerted assault on some of the progress that has been made over the last 40 years,” said Richard Shaw, politics professor at Massey University in Palmerston North. “If there’s significant disunity or civil disobedience or conflict, quite a lot of that is going to stick to Luxon and to his party.”

Despite the challenging year, Luxon has slowly built his support as preferred prime minister, raising it to 28% in August from 23% in April, according to a Verian poll for Television New Zealand. National has 38% support — ahead of the main opposition Labour Party on 30% but unchanged from election night.

–With assistance from Swati Pandey, Ben Westcott and Ainsley Thomson.

(Recasts with comments on New Zealanders leaving.)

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