Economic growth ‘sluggish’

Latest consensus reports from the New Zealand Institute of Economic Research (NZIER) show a further downward revision for growth for the years ending March 2025 to March 2027. 

Annual average forecasts point to no increase in GDP to March next year before picking up to 2.2 per cent in 2026. These reflect expectations for “sluggish” economic growth over the coming year.

Recent data also suggests deteriorating growth for the coming year. Beyond 2025, lower interest rates are expected to support a recovery in economic activity.

Forecasts for household spending suggest a deteriorating outlook with the average growth revised lower from 0.5 to 0.2 per cent for 2025 because Kiwis have cut back sharply on discretionary spending, reports the NZIER.

While lower interest rates should support a renewed interest in residential investment over the coming years, some of this will be offset by uncertainty over mortgage serviceability given a softer labour market. 

The inflation outlook has been forecast at 2.3 per cent by March 2025 and staying near two per cent in subsequent years. 

The trade-weighted index for the New Zealand dollar has been revised downward until 2027. 

The Reserve Bank lowered the OCR in August’s monetary policy statement, which was a significant shift from what the NZIER describes as its “hawkish stance” in May.

This and the deteriorating outlook for the economy are weighing on expectations of yield attractiveness of the New Zealand dollar. Its trade-weighted index is expected to track between 71 and 71.6 across the forecast period.

Wage growth forecasts have been revised downwards, while the outlook for the unemployment rate for years 2025 and 2026 has been revised up slightly amid expectations for a softening labour market.