Economic outlook has been upended again, with ASB economists expecting a prolonged period of higher oil prices through much of 2026 following the Middle East conflict and disruption through the Strait of Hormuz.
ASB Economists have lowered their 2026 annual GDP growth forecast by 1.6 percentage points, with higher fuel costs expected to weigh on consumer spending, tourism and business investment.
Inflation is expected to rise again in the near term, peaking around 4% by mid‑2026, presenting a challenging balancing act for the Reserve Bank of New Zealand.
The outlook for the global economy has been upended again and uncertainty has intensified, with tensions in the Middle East disrupting oil supplies, pushing energy prices substantially higher and creating fresh challenges for New Zealand’s economy, according to ASB’s latest Quarterly Economic Forecast.
ASB’s Chief Economist Nick Tuffley says the effective closure of the oil‑critical Strait of Hormuz, a key transit route for 20% of global oil supplies, has triggered significant upward cost pressure that we are already seeing flowing through to fuel prices, which will send inflation higher over the coming year and weigh on spending across the economy.
“Households were only just starting to feel some relief,” says Nick. “Higher fuel prices are now squeezing budgets again, and that pressure will be felt right across the economy.
“We import all of our refined fuel, so sustained increases in oil prices quickly feed into higher transport costs, higher inflation and weaker household spending.” He adds, “Unfortunately, New Zealand is vulnerable to this disruption.
“Prior to the oil shock, New Zealand was positioned for a modest recovery over 2026, supported by lower interest rates, easing cost-of-living pressures and signs of improvement in the labour market. With the new headwinds of higher fuel prices and potential fuel scarcity, that recovery is now unlikely to take place until 2027.”
ASB Economists have revised down their 2026 December annual GDP growth forecast by 1.6 percentage points. Economic output is expected to contract in the June quarter as higher fuel prices weigh on consumer spending, disrupt tourism and lower business investment.
Inflation pressures are also set to re‑emerge. ASB expects higher fuel, freight, and airfares to push annual inflation up to around 4% by mid-2026, before easing back below 3% in 2027 as energy prices stabilise and domestic demand remains muted.
The renewed inflation risk also complicates the Reserve Bank’s outlook, with the Official Cash Rate expected to remain on hold for now, but with rising risks of an earlier tightening cycle if inflation pressures become more persistent and inflation expectations creep higher.
“The RBNZ has reaffirmed it will focus on the medium-term impacts on inflation, not the more immediate impacts,” says Tuffley. “In time, the OCR is still likely to go up, but we don’t see the RBNZ rushing.”
Despite the challenging outlook, ASB economists note some silver linings. The dairy sector remains a bright spot, supported by strong global prices and the flow‑through of the payout from Fonterra’s Mainland Group divestment, while the tourism sector was supporting growth prior to the oil shock.
Nick notes, “This is a time for contingency and scenario planning rather than reliance on any single forecast. If the conflict eases sooner than expected, the outlook would improve quickly. But for now, households and businesses need to be prepared for a tougher, more uncertain period.”
The latest ASB Quarterly Economic Forecast, along with other recent ASB reports covering a range of commentary, can be accessed at the ASB Economic Insights page: https://www.asb.co.nz/documents/economic-insights.html
