Economic recovery ‘delayed but not derailed’ despite oil price risks, says Willis
Thursday, 23 April 2026
The worst scenario Treasury has modelled would see inflation rise to 7.4% this quarter and unemployment jump to 6.6% mid-next year, but was based on a now highly unlikely assumption oil would jump to US$180 a barrel, Finance Minister Nicola Willis says.
In a broadly upbeat update on the economic outlook following the conflict in Iran, Willis made clear Treasury's advice was that New Zealand's economic recovery was “delayed but not derailed”.
Developments appeared to be tracking slightly better than the most optimistic of the three scenarios Treasury had previously modelled for, in which oil prices averaged US$110 a barrel during the current quarter, she said.
That would still see inflation rise, but only to 3.9% in the current quarter, before dropping back to 1.5% a year later, with unemployment gradually falling from its last recorded level of 5.4% and annual economic growth not dropping below 2%.
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“That scenario, which at this point is most akin to what’s happening — although possibly even a little more pessimistic than what we’re seeing in the here and now — has unemployment falling into the future.”
Willis emphasised, however, that there was a great deal of uncertainty about any economic forecasts both here and overseas.
“It is not surprising that economists everywhere are heavily caveating their forecasts.”
Treasury had this week decided to “reopen the forecasts for this year's Budget”, she said.
Willis said anyone concerned by the 6.6% unemployment figure included in the Treasury’s list of possible outcomes should be aware that was based on the risk of an oil price of US$180 being “sustained through this year and next”.
“It's not looking likely right now.”
She noted a significant amount of oil was managing to bypass the Strait of Hormuz and that its price was currently about US$102 a barrel.
The International Agency Energy estimated about 10 million barrels of oil a day was exiting the Gulf, one way or another, down from 24 million barrels a day pre-conflict, with other producers stepping in to fill some of the gap.
Were unemployment to approach the worst case scenario, the “automatic response” would be the welfare system “and if there were other measures that were necessary, we would consider them”, Willis said.
She provided the update on the same day credit ratings agency Moody’s revised New Zealand’s “Aaa” outlook from stable to negative, making it the second agency to downgrade its outlook after Fitch took the same step last month.
Willis said that development reinforced the fact New Zealand could not keep borrowing and spending more without risking “higher interest rates, higher borrowing costs and more pressure on Kiwi families”.