Kiwibank economists say New Zealand is positioned for a stronger economic recovery in 2026 after a difficult 2025, supported by stimulatory interest rates, easing global risks and rising confidence among households and businesses.
Sabrina Delgado, economist at Kiwibank, said the outlook has improved materially over the past year, with economic settings now aligned to support growth.
She said: “2025 was a frustrating year, but we’re seeing markings of a recovery, not just in a few areas, but across the board. It is important to stress that interest rates today are significantly lower than they were this time last year.
“That matters. And it’s having an impact. Household budgets are starting to feel the ease and we’re seeing growing confidence.
“The recovery won’t be overnight, but the settings are now right, priming the Kiwi economy to expand around 2.4% next year.”
With the Official Cash Rate now at 2.25%, Delgado said falling mortgage rates are beginning to flow through to spending and investment decisions.
She said: “Lower rates are breathing life into households and businesses. We see this in our card data, now showing a spreading of consumption into more fun, discretionary spending – signalling the ease is finally being felt by household budgets.”
However, she cautioned that upward pressure on retail interest rates could threaten the recovery if it emerges too early.
She said: “There’s a new gust of headwind facing the Kiwi economy. It’s the premature rise of retail rates.
“Higher rates mean the economy is on the mend and growth is returning. But we’re not there yet. The signs of life have only just sprung and they need nurturing, not squashing.”
Interest-sensitive sectors such as housing and retail are beginning to respond as rates reach more supportive levels.
Delgado said retail volumes in the September quarter recorded their largest increase since late 2021, even before seasonal spending peaks.
She said residential construction also appears to have stabilised, with consents showing renewed momentum.
She said: “We’ve been waiting for the housing market to stir, and the signs are finally here. Activity is growing with sales up 6% compared to last year.
“For now, weak population growth and elevated stock are capping price growth. But the fall in interest rates is one strong tailwind for the housing market.
“And a lift in investor appetite should help turn the dial. We’re expecting a modest recovery in house prices, with growth of about 2–3% next year.”
Delgado said labour market conditions are beginning to stabilise after a challenging period, with unemployment expected to ease below 5% by the end of 2026 and hours worked trending higher.
She said inflation pressures are no longer a concern.
She said: “We’re not worried about inflation. Recessions kill inflation. And that weed has had a proper dose of economic herbicide.
“We continue to expect inflation to return towards the RBNZ’s 2% midpoint next year.”
While global risks remain, Delgado said conditions offshore have improved, with easing trade tensions, softer inflation pressures and tourism recovering to around 90% of pre-Covid levels.
She said the outlook for 2026 and beyond is materially brighter than it was earlier in the year, with growth expected to strengthen into 2027.