Better times on horizon

Annual average GDP is tipped to rise by 1.5 per cent in the year to March 2026 before growth picks up to 2.8 per cent in 2027.

That’s according to the latest consensus forecast published by the New Zealand Institute of Economic Research (NZIER) this month.

And there are emerging signs of a recovery in retail spending with gradual increases in the volume of consumer sales in recent quarters.

“The continued weakness in activity is weighing on expectations for the pace of economic recovery over the coming year,” says Ting Huang, pictured, senior economist at the NZIER.

“Global dairy prices have declined from a historically high level in recent months, mostly due to increased global dairy production. This is weighing on the export growth outlook over the coming year. 

“Concerns about US tariff policies are dampening the outlook, particularly for China. This, in turn, is weighing on expectations of export growth for the coming year.”

The outlook for inflation outlook remains largely unchanged. The consumers’ price index (CPI) has been edging up towards the top of the Reserve Bank’s one to three per cent target band with strong global commodity prices and unseasonal poor weather pushing up food prices. 

However, excess capacity in our economy is expected to drive an easing of inflation back towards the two per cent target mid-point over coming years.

The trade-weighted index for the New Zealand dollar has been revised higher for 2026, but lower for subsequent years. 

Although the Reserve Bank has been continuing to cut the official cash rate (OCR), the slowing US economy and uncertainties over its trade and fiscal policies have weighed on the yield attractiveness of US dollar-dominated assets relative to kiwi-dominated assets. 

The interest-rate outlook has been revised lower for 2026 and 2027 to reflects the central bank’s dovish tilt in its August monetary policy statement. 

In particular, reports the NZIER, clear indication has been given of two further OCR cuts in this monetary policy-easing cycle given the economy’s disappointing recovery.

With about 77 per cent of mortgages due for repricing within the next 12 months, repayments are expected to reduce further for many Kiwis. This is expected to support a continued recovery in discretionary spending.

On the flipside, the residential investment outlook has deteriorated while forecasted export growth has been revised downwards for the March 2026 year, but higher for the following year. 

The NZIER’s consensus forecasts states household spending growth has been revised higher for next year with the volume of sales continuing to increase in the June quarter. 

Huang adds: “Households are feeling more positive albeit still cautious about big-ticket purchases. Beyond 2026, growth is expected to pick up as the full impact of interest-rate cuts is transmitted to broader economic activity.”