GDP growth beats expectations — but the RBNZ's next move depends on oil prices
New Zealand's economy gathered more momentum in the early part of 2026 than most had anticipated, with GDP expanding 0.8% in the March quarter and annual growth coming in at 1.5% — ahead of Westpac's 1.2% forecast and above the 0.8% rate of population growth.
Upward revisions to the December quarter, from 0.2% to 0.5%, contributed to the stronger annual picture, with revised estimates of the housing stock lifting output from the rental, hiring, and real estate sector going back to 2018.
Growth was broadly based. Wholesale trade — described in Westpac's chartpack as "a bellwether for the broader economy" given its connections across industries — posted another strong result, up 2.4%, while manufacturing rose 1.9%.
Construction continued to drag, though the decline was smaller than Westpac had forecast, with a 4.8% jump in non-building construction providing a surprise on the upside. Residential building work declined, consistent with the softness in new housing supply that has remained a persistent feature of the market and a concern for first-home buyers and property investors alike.
Middle East conflict clouds the June quarter outlook
The March quarter strength may prove short-lived. Westpac's GDP chartpack noted the Iran conflict "has rendered these figures somewhat dated (even more so than usual)," with the surge in fuel prices expected to weigh on both confidence and activity through the June quarter. A soft — and possibly negative — GDP result is considered likely for Q2.
That deterioration has already shown up in business surveys, with PMI and PSI data pointing to a downturn in trading conditions, plans for hiring wound back, and capital expenditure deferred.
The economy is now forecast to expand by just 1.4% over 2026, "a rate that's well below average", with unemployment lingering above 5%, according to Westpac senior economist Satish Ranchhod (pictured).
RBNZ rate path: July hold now more likely
The apparent resolution of the Middle East conflict has shifted when the tightening cycle is likely to begin — and for first-home buyers, property investors, and borrowers on variable or short-term fixed rates, the most actionable takeaway is this: Westpac's forecasts point to the OCR reaching 3% by December and 4.25% by late 2027.
With global fuel prices falling, Westpac has revised its inflation peak down to 4.2% year-on-year in the September quarter, from a prior forecast of 4.5% — slightly below the RBNZ's own May projection of 4.3%. That gives the central bank breathing room. Westpac continues to expect the OCR will remain on hold until September, though markets are still pricing around an 85% chance of a July hike.
"With global fuel costs dropping back, the longer-term risks to the inflation outlook are now less pronounced," Ranchhod said, adding that some committee members who had previously advocated for an early hike may reconsider how quickly policy needs to be adjusted given the changing global backdrop.
The durability of the ceasefire, and how quickly fuel prices normalise, will be the decisive factor in how fast that tightening cycle unfolds for mortgage holders.
Read the full analysis: Westpac Weekly — 22 June 2026 and NZ GDP Review Chartpack — 19 June 2026.
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