Source: Radio New Zealand
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The past year was a tough grind for many households and businesses but forecasters say there is economic improvement on the horizon.
Kelly Eckhold, chief economist at Westpac, said he was expecting the economy to be much stronger in 2026, with growth in GDP of about 3 percent over the year compared to a flat 2025.
“That’s supported by lower interest rates in the coming year. Whereas in 2025 we saw relatively strong performance by the primary sector and tourism to some extent but not so much the services sector and the bits of the economy that really drive the major urban areas, we think we probably have much more balanced growth in 2026.”
Households might not see much wage growth initially, he said, because that was one of the last things to move, but inflation should be weaker. “The cost of living crisis should ease off a bit.”
Gareth Kiernan, chief forecaster at Infometrics, agreed things should improve.
“It can’t be worse, right? You’ve had good export prices, you’ve got interest rates which are headed lower than we had been thinking… there’s a bit of caution coming on some of those exports… but I think between the effects of the strong prices over the last 18 months and the low interest rates and the government doing more in the infrastructure space – if not anywhere else, you put all those together and there are enough signs that growth should be better.”
He said the international environment would be something to keep an eye on. “Trump and the tariffs had derailed things somewhat through the early part of this year and that sort of has hung over the economy for the rest of 2025. But who really knows in that space, I guess.”
He said there were some small signs that the labour market was already improving and that should continue to build. “There does seem to be a bit more of an air of optimism and maybe a bit more genuine growth starting to come through as opposed to the high business confidence we had a year ago which didn’t really translate into anything much this year.”
Economists from BMI, a Fitch Solutions company, said they expected 2 percent growth in 2026.
“The Reserve Bank of New Zealand’s rate cuts will continue to ease monetary policy conditions – even if most of the easing cycle is likely behind us – supporting household spending and business investment. We anticipate a 25 basis points cut to 2 percent by the end of 2026. Government infrastructure projects – including Auckland’s City Rail Link, major highway upgrades such as the Waikato Expressway, and water resilience programmes – will add momentum. Externally, strong demand for dairy and meat, alongside a tourism rebound, should underpin growth.
“However, downside risks persist. An escalation in global trade tensions or new tariffs could weaken export performance, while a slower-than-expected recovery in Mainland China – New Zealand’s largest trading partner – would dampen agricultural demand.
“Domestically, persistent labor shortages and wage pressures could restrain productivity, and delays to infrastructure projects would reduce fiscal support. Additionally, if inflation proves sticky, the Reserve Bank may pause or reverse rate cuts, curbing the anticipated lift to consumption and investment.”
Simplicity chief economist Shamubeel Eaqub said he was much more optimistic about 2026. “Mainly because we’re starting to see a bottom in a lot of things a the moment. Some of the distress is fading.”
But he said the recovery would not be felt evenly.
“I think there has been a real expansion of poverty in New Zealand, there’s a chunk of New Zealanders that are continuing to do it really tough.
“They’re stuck in that position where they work in industries that are not going to recover strongly. They work in industries that have relative low-wage, they work and live in places where the cost of living has gone up a lot with rents… so these things are not going to turn around quickly.
“A rising economy Is not enough to lift them up.. But for the median and for the people in the top end I think things will look a lot better.”
Sources of growth will change, he said, as some of the momentum shifted out of the primary sector.
“But by the second half of the year, all the weight of the rate cuts, the cumulative benefits of all the rate cuts would have come through. And we should start to see banks lending again because, you know, they’re fair weather friends.
“And then once they start lending money, that’s when you really juice up the cycle because it’s really about investments.
“When people start to make investments and businesses make investments, that’s really when the economy recovers. Also, I’m getting more optimistic on the government’s capex plans.
“For the last couple of years, they’ve been reducing spending, reducing spending, reducing spending. That’s really the only place austerity has worked so far in not investing in infrastructure. But if you look at all the announcements that have taken place in the second half of this year, it’s all about central government and local government doing more next year. And so all the pipeline stuff, it looks like we are going to see quite a lot of activity starting in the beginning of next year. So with the government coming back and hopefully the private sector coming back through the middle of next year, you’ve kind of got more of a platform for growth.”
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