NZ’s economic recovery is dawning, if Donald Trump allows it: Infometrics
Friday, 17 July 2026
“Sharply” lower fuel prices mean voters should see economic recovery emerging in the second half of the year, says Infometrics chief forecaster Gareth Kiernan.
But Kiernan admits it is all in the hands of US President Donald Trump, who has been making economic forecasters’ job very hard indeed.
The state of the economy is a top issue for voters, polling by The Post/Freshwater Strategy shows, but whether voters will head to the polls with a sense that things are getting better now depends on Trump’s ill-fated war on Iran.
Kiernan said that since mid-April, lower fuel prices, particularly for diesel, have cleared the way for New Zealand’s long-awaited economic recovery to resume in the second half of 2026.
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But Kiernan says there was similar optimism early last year, and then Trump “side-swiped” New Zealand with its “Liberation Day” in which it unilaterally imposed tariffs on countries all around the world, including New Zealand, despite the fact that US tariffs on New Zealand goods were already much higher than New Zealand’s virtually zero tariffs on imports from the US.
Then, at the start of this year, when economic recovery for New Zealand seemed within touching distance, Trump launched his war on Iran, sending fuel prices spiralling up.
But with fuel prices having dropped, Infometrics expected economic growth to reach a four-year high of 2.7% per annum in mid-2027, Kiernan said.
“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 likelihood of inflation persisting above 2% beyond mid-2027 has reduced, meaning there is also much less pressure on the Reserve Bank to raise interest rates as far.”
But, he said: “Events over the last week have shown that the situation in the Middle East remains volatile.”
The events included Iran attacking three commercial vessels in or near the Strait of Hormuz, and Trump’s reaction to them.
“The unpredictability of it is fairly difficult to forecast,” Kiernan said.
Kiernan said the Government had promised an improvement in the economy, and the public had been disappointed that it had not eventuated.
And, he said, the Government’s tightening of fiscal policy ‒ a phrase that refers to government spending and tax policy ‒ was needed, but had also had an effect on the economy.
Polling by The Post/Freshwater Strategy indicates that more people blame the current Government than events overseas.
Confidence was low among households and businesses, so they were holding fire on spending and investing, Kiernan said.
The Reserve Bank raised the official cash rate by 25 basis points to 2.5% on Wednesday last week, and Infometrics forecasts it will be lifted to 3% by the end of this year, then lifted further to 3.5% in 2027.
But, Kiernan said, those rises, which tend to drive up mortgage rates, now looked set to be a response to improving demand conditions rather than the Reserve Bank fighting against inflationary pressures outside its direct control.
Stronger growth in consumer spending would start to show through in the second half of 2026, he said.
But high unemployment meant people remained nervous, and spending growth would be dampened by a delayed turnaround in the labour market, with the unemployment rate set to stay around 5.4% until mid-2027, before gradually tracking down to 4.5% by the end of 2028.
He expected the housing market and construction activity to remain weak, which would also put a dampener on people’s willingness to spend.
However, he said, business confidence and investment spending remained relatively upbeat, suggesting that firms are preparing themselves for a resumption of the improvement in growth that seemed to be occurring at the start of this year.
“Looking forward, the outcome of the election later this year is a key source of uncertainty, and unpredictable US actions or other international events could again undermine confidence and derail the economy’s recovery,” Kiernan said.