• Easing oil prices have strengthened New Zealand’s outlook and reduced the risk of a prolonged inflation shock
• Lower fuel costs and stronger than expected economic momentum have put New Zealand’s recovery back on firmer footing
• Geopolitical risks remain a key watchpoint, but the immediate threat to household spending and business costs has eased.
New Zealand’s economic outlook has markedly improved in recent months, with falling oil prices easing pressure on inflation, household budgets and business costs, according to ASB’s latest Economic Forecast Update.
ASB Chief Economist Nick Tuffley says the sharp decline in global oil prices has materially changed the outlook since ASB’s March forecast: https://www.asb.co.nz/content/dam/asb/documents/reports/quarterly-economic-forecasts/asb-forecast-update_mar26a.pdf
“The New Zealand economy has shown greater resilience than many expected in the face of global uncertainty and higher fuel prices,” says Nick.
“While geopolitical risks remain elevated, falling oil prices have significantly reduced one of the biggest risks to growth and inflation this year.”
Global oil prices have dropped sharply from their March peaks amid hopes that negotiations between Iran and the United States will ease disruptions linked to the Strait of Hormuz. While shipping through the Strait remains disrupted and energy infrastructure has been damaged, fuel prices have declined substantially in recent months, reducing pressure on inflation and easing the squeeze on household spending.
“Higher fuel prices were starting to crowd out household spending and lift business costs across the economy,” says Nick.
“Those pressures are now easing substantially. Consumers are likely to feel more confident than they did earlier in the year, and businesses have greater certainty about their cost environment.”
The New Zealand economy entered 2026 with stronger momentum than previously estimated. GDP rose 0.8% in the March quarter, while revised 2025 data showed growth was stronger than previously thought and becoming more broad-based across the economy.
However, Nick says elevated fuel prices and heightened uncertainty are still expected to weigh on activity through the middle of 2026.
“The recovery has not been derailed, but it has been delayed. Household spending, business investment and some export sectors are still feeling the effects of the oil shock, and the labour market remains soft.”
Inflation remains a key focus. ASB forecasts annual CPI inflation will rise to around 4.1% in the June 2026 year, driven largely by earlier fuel price increases. However, falling oil prices are expected to ease inflation pressure through the second half of the year and into 2027.
“The inflation outlook remains highly uncertain and depends heavily on developments in the Middle East,” says Nick. “But the recent fall in oil prices means inflation now looks considerably less challenging than it did a few months ago.”
The changing inflation outlook is expected to give the Reserve Bank more time to assess economic conditions before raising interest rates. ASB Economists now expect the Official Cash Rate to remain on hold until September before gradually increasing through late 2026 and early 2027.
Looking ahead, ASB expects the recovery to continue gradually, supported by resilient commodity prices, recovering tourism and lower fuel costs, although geopolitical risks remain elevated. Dairy and meat export sectors continue to benefit from strong global demand, while tourism has recovered to 93% of pre-COVID visitor levels.
“The outlook has improved, but uncertainty remains high,” says Nick.
“It would only take one significant geopolitical shock to reverse recent gains, so businesses and households still need to prepare for a range of possible outcomes. For now, though, the recovery appears to be back on track.”