Falling fuel costs support hopes of renewed growth and gentler rate rises
New Zealand's economic recovery could be back on track, with forecasters pointing to falling fuel prices as the key factor easing pressure on both businesses and the Reserve Bank, according to Infometrics' latest forecasts, reported by RNZ and Stuff.
The economic consultancy now expects growth to reach a four-year high of 2.7% by the middle of next year, a marked improvement on the more cautious outlook of three months ago.
Infometrics chief forecaster Gareth Kiernan (pictured) said fuel prices have fallen sharply since mid-April, with diesel now settling around $2.40 a litre, well below the $3.80 a litre highs recorded earlier this year.
"Sustained cost pressures on businesses are much less pronounced than we had initially feared," Kiernan said, adding that this reduces the odds of inflation running above 2% beyond mid-2027 and, in turn, the pressure on the Reserve Bank to keep lifting rates.
A gentler path for the OCR
For advisers watching the interest rate outlook, the more notable shift is in how any further increases are likely to arrive. Kiernan expects the official cash rate to reach 3% by year's end and 3.5% next year — but he's framing the driver differently to before.
Rather than the RBNZ fighting to contain inflation, he said further hikes next year would more likely reflect "the Reserve Bank responding to a better performing New Zealand economy, less spare capacity, better demand conditions."
HSBC chief economist Paul Bloxham struck a more cautious note, pointing to New Zealand's stagnant housing market as a persistent drag on household spending.
"Past economic upswings have coincided with strong housing market activity, which, in turn, has typically buoyed household consumption through the 'wealth effect,'" Bloxham said. "But not this time."
HSBC expects only a modest lift in house prices through the second half of 2026 and into 2027, forecasting 100 basis points of OCR hikes by the end of 2027 — notably below current market pricing of 135 basis points.
Consumer spending yet to fully recover
Retail spending data released this week showed a flat month, following a 2.8% annual rise in May, with apparel and hospitality spending both down year-on-year.
Kiernan said a soft labour market and limited construction activity would continue to weigh on household spending, even as business confidence and investment intentions remain relatively upbeat.
On the labour market, Infometrics expects unemployment to hold around 5.4% until mid-2027 before gradually easing to 4.5% by the end of 2028.
Stay informed with the latest housing market trends and mortgage insights — subscribe to our free daily newsletter.
