Recovery lacks conviction
New Zealand has entered 2026 with its long-anticipated economic recovery still looking unconvincing, according to Infometrics’ latest forecasts.
Despite lower interest rates, more focus on government investment and historically high export incomes, indicators show momentum remains fragile. More signs of improvement are expected by the middle of this year when labour-market conditions should be turning.
“Households remain hesitant to embrace any potential upturn, especially given the false start of a recovery in 2025, with many people still unwilling to commit to major decisions,” says Gareth Kiernan, pictured, Infometrics’ chief forecaster.
“Consumers and many businesses are fatigued after three years of stop-start conditions. Although some indicators have improved, the overall momentum has been too patchy to fully restore confidence.”
The labour market is a key factor for this year’s prospects of recovery. “Unemployment is forecast to stabilise at its current level of 5.3 per cent before beginning a gradual decline from the June 2026 quarter. This shift supports Infometrics’ upgraded GDP growth outlook of 2.5 per cent for 2026, rising to 2.9 per cent in early 2027 as broader activity strengthens.”
Inflation remains a key risk to the interest rate outlook. “Annual inflation of 3.1 per cent per annum has increased the possibility of the Reserve Bank needing to lift interest rates earlier than previously expected – a risk we signalled last year.
“We still anticipate the first official cash rate increase at the end of 2026. But if economic growth accelerates and inflation keeps surprising on the upside, the bank might need to move sooner.”
Export conditions offer support, despite dairy and horticulture prices falling late in 2025. Kiernan says: “The weaker NZ dollar and growing dairy production have been cushioning the impact of some commodity prices easing back from highs, while meat prices remain strong.
“Although further softening in commodity prices could limit farmer spending later in the year, rural returns overall are expected to remain favourable.
“Household spending remains the weakest part of the recovery story, but also the most important driver of further economic momentum with indicators fluctuating and cost-of-living pressures still weighing on budgets.
“Infometrics expects spending growth to lift gradually towards a peak of 3.3 per cent per annum in 2027. However, the limited response to lower mortgage rates so far suggests that downside risks to this forecast remain even with the average interest rate across all mortgage debt easing to around 4.7 per cent in the second half of this year.”
“The economy has the ingredients for recovery, but an improvement in the labour market will be needed to increase household confidence and build further momentum.
“Export incomes are still healthy, interest rates remain low for now and labour-market conditions are gradually improving. The fundamentals are lining up. We need businesses and households to be confident enough to start acting on them
