Interest rates are predicted to decline only briefly, with an expected increase beginning at the end of 2026.
Gareth Kiernan, chief forecaster at Infometrics, stated that annual economic growth is expected to speed up to 2.3% by early 2027, with annual per capita growth well exceeding the 1.4% average seen in the 2010s.
The outlook contrasts with the latest Stats NZ figures, which reported a 0.9% GDP decline in the second quarter ending in June and a 1.1% decrease compared to the same period the previous year.
Kiernan stated that the official cash rate is expected to increase to 3% during the first half of 2027, but it could potentially reach 4% due to several risks.
“A new round of monetary policy tightening is likely to be needed from late 2026 to get interest rates back to neutral,” he said.
“We expect households to respond with stronger spending growth in the near term, and we also see faster growth in business investment and residential construction in 2027.”
Kiernan noted that the growth forecast is backed by heightened government investment in infrastructure ahead of next year’s election.
He explained that the stimulus is expected to boost economic growth, requiring the Reserve Bank to resume a tightening cycle.
Nonetheless, the near-term outlook anticipates additional rate cuts later this year.
Interest rates are expected to decline further in 2025.
Kiernan said the Reserve Bank is expected to cut interest rates again next month, taking the official cash rate down to 2.25% (from 2.5%) and holding it at that level through most of 2026.
“We think potentially that turns out to be a little bit unnecessary, given the sort of effective previous interest rate cuts and the strength of export prices flowing through into provincial economies, which should lead to faster growth next year.”
Kiernan added that the economy still requires some stimulus.
“I think everyone’s been hanging out for better economic conditions through the last two or three years, when things have been tough.”
“And so from a business point of view, you will be wanting to make the most of those improved demand conditions through 2026.”
He advised consumers to consider locking in mortgage rates while interest rates are still low.