Economists trim near-term growth outlook as fuel shock and rate hikes weigh on households
New Zealand's economic recovery is expected to remain slow and fragile over the coming year, with inflation staying above target for longer than households might hope, according to the latest NZIER Consensus Forecasts.
Inflation set to stay elevated near-term
For brokers advising clients on fixed-rate timing, the inflation outlook is the key data point. NZIER expects annual CPI inflation to remain above 3% in the near term before easing towards 2% by the year ending March 2028, as fuel prices ease from their peaks and spare capacity limits broader price pressures.
The unemployment rate is forecast to hold broadly steady, though wage growth has been revised lower for 2028, pointing to continued softness in labour market conditions that could weigh on borrowing capacity for some clients.
That pressure is already visible in the mortgage market: two-to-five-year fixed rates have pushed above 5%, even as the RBNZ signals only a gradual pace of further tightening.
Growth resuming, but conditions remain soft
The survey, which pools forecasts from eight major banks and agencies including ANZ, ASB, Kiwibank, Westpac, and the Reserve Bank, points to annual average GDP growth of just 1.7% for the year ending March 2027, before picking up to 2.8% in 2028 and 2.9% in 2029.
NZIER says the economy is regaining momentum after being knocked off course by the earlier fuel price shock but cautions that "the recovery is expected to remain gradual and fragile, with households and businesses still cautious about spending and investment."
Household spending remains a soft spot for brokers to watch. Retail spending declined in the June quarter as higher fuel and energy costs squeezed budgets, and higher mortgage rates alongside continued labour market softness are expected to weigh further on discretionary spending.
Residential investment forecasts were revised lower for 2027, though upgraded for 2028, with dwelling consents picking up even as that hasn't yet flowed through to construction activity.
Export returns offer a brighter spot, with dairy and meat returns supporting a stronger near-term export growth forecast, though NZIER flags ongoing geopolitical uncertainty and a weaker global growth outlook as downside risks to demand.
Short-term interest rate forecasts remain broadly unchanged from the previous survey, consistent with the Reserve Bank's own mild tightening bias signalled in its September Monetary Policy Statement.
For advisers, the combination of sticky inflation and gradual growth points to a market where borrowing capacity stays under pressure through 2027, with any recovery in buyer confidence likely to build slowly rather than snap back.
Download the NZIER Consensus Forecast here.
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