A recovery you can’t take to the bank yet
After three brutal years, the numbers are finally pointing up. Infometrics is forecasting economic growth of 2.7 percent by mid-2027, a four-year high, and ASB called the turnaround “delayed not derailed” on 6 July. For business owners who have spent since 2023 grinding through weak demand and rising costs, that is the most encouraging outlook in a long time.
But the forecast comes with a condition attached, and the condition is one no New Zealand business controls: the price of fuel.
The whole story runs on diesel
Rewind to late February 2026, when a Middle East conflict closed the Strait of Hormuz. Brent crude nearly doubled to US$138 per barrel by early April, petrol hit NZ$3.40/L and diesel reached NZ$3.68/L, up 97 percent from February. That shock derailed a recovery that had barely started.
A US-Iran memorandum guaranteeing passage through the Strait brought prices back down. Diesel now sits around $2.40/L, versus the $3.80/L peak seen earlier this year, and that single reversal is doing most of the work in the optimistic forecast.
Infometrics chief forecaster Gareth Kiernan put it plainly: “with diesel prices of around $2.40/L, rather than the $3.80/L we saw earlier this year, sustained cost pressures on businesses are much less pronounced than we had initially feared”. Lower fuel means less inflation, which means less pressure on the Reserve Bank to keep hiking. Kiernan even frames the projected OCR path of 3.0 percent by end-2026 and 3.5 percent by end-2027 as a good-news signal, the Bank responding to a stronger economy rather than fighting inflation.
It is a coherent story. It also depends entirely on the Middle East behaving.
The data under the optimism is uncomfortable
Here is what the cheerful headline glosses over. The NZIER Quarterly Survey of Business Opinion shows confidence improving as fuel eased, but the pricing pipeline is heating up. A net 41 percent of firms raised prices in the June quarter, up from 22 percent, the highest since September 2023. And a net 54 percent intend to raise prices in the next three months, the highest since March 2023. That is a leading indicator of sticky inflation, exactly the thing that could force the OCR higher than 3.5 percent.
The survey’s own timing tells the tale. Westpac senior economist Michael Gordon noted that early responses were a net 5 percent negative while responses after the US-Iran signing were a net 20 percent positive, and with hostilities flaring again this month, “the first batch of responses is probably more representative of where sentiment would stand if the survey was re-run today”. NZIER itself flagged that Middle East conditions “remain highly volatile”.
Structural drags that don’t care about oil
Even in the good scenario, several anchors limit the upside. Unemployment is forecast to stay around 5.4 percent until mid-2027, constraining household spending, which was flat in June after a 2.8 percent year-on-year gain in May. Housing is the bigger break from history. HSBC chief economist Paul Bloxham points out that past upswings rode a housing wealth effect, “but not this time”, with many households who bought near the peak underwater. And BusinessNZ warned that “freight, transport and insurance costs are expected to remain elevated for some time”, with its Economic Conditions Index at -1, down 13 points on the quarter.
The genuine bright spot is the primary sector. Kiernan noted the recovery is most visible in parts of the South Island, where “high export prices, good returns for farmers across meat and dairy, were flowing through”.
Plan for the downside
The honest read is that 2.7 percent growth is the upside case, not the base case. Treasury’s more conservative Budget 2026 picked 2.3 percent GDP growth in 2026/27, and even that relied on oil easing to around US$77/barrel by mid-2027. Businesses that budget for the sunny forecast are exposed to a scenario where fuel resurges, prices stay sticky and the Reserve Bank goes past 3.5 percent. Build resilience against that, and treat the good numbers as a bonus rather than a plan. Kiernan’s own sign-off is the right frame: he is “hopeful that more settled conditions prevail”. Hopeful, not certain, and neither should you be.
Sources
- Is our economic recovery coming at last? (2026-07-17)
- Bank says NZ economy finally turning the corner, ‘recovery delayed not derailed’ (2026-07-06)
- Moderating fuel prices open road to recovery (2026-07-17)
- Budget Economic and Fiscal Update 2026 (2026-05-28)
- NZIER QSBO shows a pick-up in business confidence as concerns over the fuel crisis ease, July 2026 (2026-07)
- NZ Economy: No Strait Answers – BusinessNZ Planning Forecast (2026-06)
- First Impressions: NZIER Quarterly Survey of Business Opinion, June quarter 2026 (2026-07-14)