Sharply lower fuel prices since mid-April, particularly for diesel, have cleared the way for New Zealand’s long-awaited economic recovery to resume in the second half of 2026. According to Infometrics’ newly published forecasts, economic growth is set to reach a four-year high of 2.7%pa in mid-2027.
“Events over the last week have shown that the situation in the Middle East remains volatile,” said Infometrics Chief Forecaster Gareth Kiernan. “But with diesel prices of around $2.40/L, rather than the $3.80/L we saw earlier this year, sustained cost pressures on businesses are much less pronounced than we had initially feared. The likelihood of inflation persisting above 2%pa beyond mid-2027 has reduced, meaning there is also much less pressure on the Reserve Bank to raise interest rates as far.”
Infometrics forecasts the official cash rate will be lifted to 3%, around neutral, by the end of this year and then lifted further to 3.5% in 2027. Importantly, those interest rate rises now look set to be a response to improving demand conditions, rather than the Reserve Bank fighting against inflationary pressures that are outside its direct control.
This less critical squeeze on household budgets means that Infometrics is forecasting that stronger growth in consumer spending will start to show through in the second half of 2026. To some degree, spending growth will be dampened by a delayed turnaround in the labour market, with the unemployment rate set to stay around 5.4% until mid-2027, before it gradually tracks down to 4.5% by the end of 2028. The weak housing market and limited growth in construction activity will also prove challenging for aspects of the recovery in household spending and broader economic growth. However, business confidence and investment spending remain relatively upbeat, suggesting that firms are preparing themselves for a resumption of the improvement in growth that seemed to be occurring at the start of this year.
“Looking forward, the outcome of the election later this year is a key source of uncertainty, and unpredictable US actions or other international events could again undermine confidence and derail the economy’s recovery,” said Mr Kiernan. “Businesses and households have become fatigued from the buffeting they have endured throughout the last three years. But the current environment looks less challenging than we expected three months ago, and we are hopeful that more settled conditions prevail and enable the New Zealand economy to shake off the malaise that has dogged it since 2023.”
ENDS
More details about Infometrics forecasts can be found on the respective Building, Transport, and Macroeconomic forecasts pages on the Infometrics website.
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