Westpac’s Q1 economic overview paints a brighter 2026 picture, fuelled by climbing consumer confidence in major cities, strong exports, and low short-term interest rates.
“After a rocky few years, the New Zealand economy looks to be on much firmer footing in 2026,” Westpac chief economist Kelly Eckhold said.
Westpac now projects New Zealand’s annual economic growth at 1.8% for the year to 2025, accelerating to 3.3% in 2026 and 2.7% in 2027.
Eckhold expects the unemployment rate to drop below 5% in the second half of 2026, falling further in 2027 from 5.4% in the year to 2025.
“Average borrowing costs are expected to decline further in 2026 as more borrowers roll off earlier fixed terms onto lower mortgage rates.”
“That will help support demand across the domestic economy.”
He noted that inflation, which surprised on the upside at 3.1% in late 2025, is forecast to ease in 2026 amid broad-based price pressures, with core inflation staying above the RBNZ’s 2% target midpoint through the year.
However, Eckhold anticipates the RBNZ will hold the OCR steady at current levels through year-end.
“The RBNZ will take most of 2026 to gain confidence that the economic recovery is sustained and durable,” he said.
“But from then they will move quickly to restore neutral interest rate settings and then move interest rates to slightly restrictive levels in 2028.”