Uncertainty dampens but doesn’t derail the economic recovery

New Zealand’s economy is in recovery mode, even if it doesn’t feel like it, according to Infometrics’ latest economic forecasts. Economic growth, most recently measured at 1.7%pa by Stats NZ, is set to hold above 1.5%pa through until mid-2027, before accelerating to 2.2%pa by the end of next year. High fuel prices and a cautious approach to spending among households could result in stuttering growth in the near term, with persistent uncertainty preventing more solid momentum in growth.

“There is no doubt that cost-of-living pressures, particularly for transport, are still squeezing household budgets,” said Infometrics Chief Forecaster Gareth Kiernan. “Higher interest rates are also weighing on spending growth and the housing market, with wholesale rates rising due to concerns about global inflation and government debt levels. Even the growth the New Zealand economy has achieved over the last year feels insipid compared to the heady days following the COVID-19 pandemic, when per-capita activity was 1.3% higher than it is now.”

Yet the economy had shown resilience throughout the first half of this year and, despite the renewed surge in fuel prices over the last three months, many of the building blocks of better economic growth remain in place. Job numbers have increased 1.0% since October last year, residential and civil construction activity are growing, monthly international tourist arrivals reached pre-COVID levels in July, and activity across many provincial regions continues to benefit from high meat prices, solid dairy and horticulture prices, and strong growth in dairy volumes. With net migration having stabilised and lifted since mid-2025, Infometrics sees enough in the data for economic growth to remain moderately positive in the near term, before a more fully-fledged pick-up drives GDP growth up to 3.2%pa in the second half of 2028.

Evidence from across the economy suggests that patchy demand and competitive pressures are limiting the ability of businesses to fully pass on the higher costs they are currently experiencing. Infometrics expects inflation to peak at 4.2%pa in the December 2026 quarter, causing enough concern for the Reserve Bank to raise the official cash rate to 3.25% by the end of this year and 3.75% by April 2027. This tightening should be enough to keep second-round cost pressures under control, and inflation is forecast to slow to 2.2%pa by early 2028.

“Businesses and households will obviously be disappointed by the delaying effects, once again, of high fuel costs on substantially better financial and economic outcomes. Uncertainty is also being amplified by perhaps the closest election contest in over three decades,” said Mr Kiernan. “But unlike during 2024 and 2025, economic activity is currently increasing, meaning growth is not the distant mirage that taunted us during the previous couple of years. It’s just a recovery that is a whole lot slower than we’d hoped for by now. More global stability wouldn’t go amiss, but we are cautiously optimistic that businesses can forget about nifty rhymes of promised growth and actually be buoyed by improving demand conditions throughout the next 18 months and beyond.”

ENDS

More details about Infometrics forecasts can be found on the respective National Construction Outlook, National Transport Outlook, and National Economic Outlook pages on the Infometrics website.