‘Fatigued from the buffeting,’ but NZ may be on the cusp of recovery, economy forecast says

Friday, 17 July 2026

Infometrics expects economic growth to pick up in the second half of 2026, provided fuel prices remain well below the highs seen earlier this year.

New Zealand could finally be on the cusp of an economic recovery, with lower fuel prices easing pressure on businesses and household budgets, Infometrics says.

In its latest forecast, released Friday, the economic consultancy predicted growth will strengthen during the second half of 2026, and reach a four-year high of 2.7% a year, by mid-2027.

Infometrics chief forecaster Gareth Kiernan said the sharp fall in fuel prices since mid-April, particularly for diesel, had improved the economic outlook.

“But with diesel prices of around $2.40/L, rather than the $3.80/L we saw earlier this year, sustained cost pressures on businesses are much less pronounced than we had initially feared,” Kiernan said.

The Reserve Bank hiked the official cash rate by 25 basis points to 2.5%, its first rise since May 2023. While Finance Minister Nicola Willis welcomed it as a sign of economic recovery, homeowners face immediate mortgage pressures.

While renewed volatility in the Middle East remained a risk, Infometrics now believed there was less chance of inflation remaining above 2% beyond mid-2027.

That could also mean less pressure on the Reserve Bank to push interest rates significantly higher.

Infometrics forecasts the Official Cash Rate will rise to 3% by the end of 2026 before reaching 3.5% in 2027.

Kiernan said those increases were now more likely to reflect improving demand in the economy rather than attempts to combat externally driven inflation.

Lower cost pressures should also give households more room to spend, with Infometrics forecasting consumer spending growth will strengthen during the second half of the year.

New retail spending data highlights a two speed recovery with Auckland lagging behind. Political Correspondent Zane Small looks at whether an expanded SailGP in 2026 could help lift the City of Sails and revive confidence in the economy.

However, any recovery is unlikely to be felt evenly.

Infometrics expects unemployment to remain around 5.4% until the middle of 2027, before gradually declining to 4.5% by the end of 2028.

A weak housing market, and limited construction growth, were also expected to weigh on the recovery, although business confidence and investment remained relatively positive.

Kiernan said the outcome of this year’s election, unpredictable decisions from the United States, and other international events, remained significant risks.

“Businesses and households have become fatigued from the buffeting they have endured throughout the last three years,” he said.

“But the current environment looks less challenging than we expected three months ago, and we are hopeful that more settled conditions prevail and enable the New Zealand economy to shake off the malaise that has dogged it since 2023.”