New Zealand has been in a downturn for the past three years - but some parts of the country are coming out of it, Kiwibank says.

It has released its latest Regional Score update, which shows Otago and Canterbury are the best performing regions, while Wellington and Gisborne were at the bottom of the rankings.

Chief economist Jarrod Kerr said tourism and agriculture were helping drive strong economic performance in the South Island while higher unemployment and weak business conditions were weighing on many parts of the North Island.

"The economy is improving, but it's doing so at different speeds across the country. Tourism-heavy and agricultural regions in the South Island are leading the way, while many households and businesses in the North are still feeling the pressure of weak demand, higher costs and economic uncertainty."

He said it was disappointing that it had been another year without a meaningful, nationwide recovery.

"This is a really long downturn. This started in 2023. We had a recession in 2024, we recorded another recession in 2025 and we would have recorded a contraction in activity at least one quarter this year, so that is a very long time.

"You could say the same thing about the housing market, we had this crazy run after Covid. Policymakers and politicians did everything they could to get that under control, house prices fell and they haven't recovered. They've just gone sideways, particularly in Auckland and Wellington.

"As much as we like to argue over the Kiwi dream and the impact of housing, it does have a meaningful impact on household confidence and business confidence. Particularly small business confidence, because many of them will come to a bank and say 'hey I've got a great idea, can you lend me $1 million' and we'll say 'yeah great, here's your interest rate as s straight deal or if you attach your house to it, here's an interest rate that's much lower'."

He said half of small businesses had lending tied to their house so when values were falling, it played on people's minds.

Otago and Southland had the strongest house price performance.

North Island unemployment is running at about 6 percent compared to 3.7 percent in the South Island. Underutilisation is running at 13.8 percent. Northland has one of the worst readings on that measure.

"The labour market tells the story clearly. Many households are finding it difficult not just to secure work, but to secure enough hours and income. That's especially true in parts of the North Island.

"People in the south are doing it a lot better than people in the north. And it just shows you when you build a city back better and there's good infrastructure and housing's affordable, people will flock down there like they are into Christchurch right now, you know, build the infrastructure, get the affordable housing and just look at how the city flourishes and the confidence of people down there, it really is like they're speaking a different language right now. Whereas in the North Island, we're quite downbeat on ourselves and it's going to take a period of pretty solid growth."

He said he still expected improvement through next year.

Lower interest rates, improving agricultural incomes and another strong tourism season were expected to support economic activity, particularly across regional New Zealand.

"The good news is that the foundations for stronger growth are in place and the direction of travel is positive. Tourism is rebounding, commodity prices remain supportive and lower borrowing costs should help lift activity over the coming year.

"While the recovery remains uneven, we expect economic momentum to strengthen and become more widely felt across New Zealand through 2027," Kerr said.

He said if he could wave a magic want he would want less uncertainty offshore, the Strait of Hormuz to be opened, oil prices back down under US$70 and the election over, with more certainty about taxes for investors.

"We saw very strong evidence of a recovery over the second half of 2025, and we came into 2026 quite optimistic, if you remember, and we've been sideswiped.

"I think that recovery's still there, it's just been postponed."