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New Zealand in 2026
- New Zealand’s growth upswing appears to have gained some traction heading into 2026.
- Growth is being supported by stimulatory monetary conditions and high commodity prices.
- With an election expected in late 2026, policymakers ought to focus on ‘pro-growth’ economic reform to lift productivity
Recovery after recession
After three years of tough times, New Zealand’s economy finally appears to be in a solid growth upswing. Our central case is that GDP growth will pick up from a very weak 0.4% in 2025 to an above-trend rate of 2.5% in 2026.
In our view, the interest rate cycle has been a major driver of the economic cycle. As we see it, much of the weakness over the past few years had reflected the aggressive approach taken by the Reserve Bank of New Zealand (RBNZ) to managing the post-pandemic high inflation challenge. And now, following the RBNZ’s aggressive easing of policy, we see stimulatory monetary policy supporting the growth upswing. The cash rate has, after all, been cut by a hefty 325bp since August 2024 to 2.25%, which is well below neutral. We expect this to be a key support for a pick-up in activity in 2026, particularly household consumption and business investment.
High commodity prices are also supporting New Zealand’s agricultural sector. So far, the boost to rural incomes has largely shown up in strong growth in the South Island, and much of the income boost seems to have been partly used to pay down rural debt, but we expect the upswing to spread more broadly into the economy in 2026.
We also expect fiscal policy to support growth in 2026, as the government heads towards an election, which is likely in H2 2026. Although there has been a stated aim to deliver fiscal consolidation, electoral years typically see increased public spending.
Although the jobs market remains weak, employment typically lags the cycle, and we expect some improvement through 2026. As we see it, the RBNZ will only start to hike its cash rate once it is clear the unemployment rate has peaked, and when underlying inflation starts to lift. We expect hikes from Q3 2026.
Of course, the global backdrop continues to be an important driver of New Zealand’s growth. Fruit and meat exports are already around record highs, with long-term growth opportunities supported by China’s burgeoning middle-class consumers. The tourism sector is recovering as well. Finally, the tech sector is playing some role in the recovery, as AI, data centre investment, and tech exports gain momentum.
The following analyst(s), who is(are) primarily responsible for this document, certifies(y) that the opinion(s), views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Jamie Culling and Paul Bloxham
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