Growth is back, just too slow to justify the next hire

The good news is that New Zealand is no longer chasing a recovery that keeps receding. The less comfortable news is that it is arriving at a pace few business owners will feel in their bank balance. Infometrics chief forecaster Gareth Kiernan puts annual growth at 1.7% now, rising to 2.2% by the end of 2027, before picking up properly in 2028.

Kiernan is blunt about it. “Economic activity is currently increasing, meaning growth is not the distant mirage that taunted us during the previous couple of years. It’s just a recovery that is a whole lot slower than we’d hoped for by now.”

That is better than recession. It is not a hiring signal.

The recovery is broader than farming

Credit where it is due, this is not just a commodity sugar hit. Manufacturing, residential and civil construction, and tourism are all lifting alongside the farm sector. Infometrics’ detailed note shows job numbers up 1.0% since October 2025, international arrivals back to pre-COVID levels by July, and provincial regions riding high meat prices and strong dairy and horticulture returns.

The official numbers back it up. Stats NZ data shows the June 2026 quarter grew 0.2% on the quarter and 1.7% on the year, a genuine turnaround from the 1.2% contraction in the September 2024 quarter. Treasury’s pre-election update lands in the same place, forecasting 1.6% growth in 2026 and 2.3% in 2027.

Money gets dearer before it gets cheaper

Here is the sting. The same forecast that confirms growth also has inflation spiking to 4.2% by the December quarter on the back of fuel prices, with the Reserve Bank expected to hike twice more this year to 3.25% and twice again in early 2027 to 3.75%.

Kiernan warns that cost-of-living pressures, particularly for transport, are still squeezing households, and higher rates are weighing on spending and the housing market. Businesses, meanwhile, have limited room to pass rising costs on to customers. Add an election close enough to make everyone wait and see, and the mood dampener is obvious.

July’s optimism did not survive the petrol pump

The revision is what business owners should notice. In July, Infometrics was forecasting growth reaching a four-year high of 2.7% by mid-2027, on the assumption diesel held near $2.40 a litre rather than the $3.80 seen earlier in the year. Kiernan then expected the OCR to peak around 3.0% this year and 3.5% in 2027, with hikes reflecting a stronger economy rather than an inflation fight.

Three months on, the growth peak is lower and later, and the rate peak is higher. Fuel did that. Treasury likewise blames Middle East conflict for pushing fuel prices higher on top of the drag from high interest rates and weak domestic demand. Any business plan built on the mid-year “cheaper money, faster growth” scenario now needs rewriting.

Confidence has outrun the tills

NZIER’s latest Quarterly Survey of Business Opinion explains why owners feel better than their accounts suggest they should. Senior economist Ting Huang says confidence is improving but “the recovery has not been broad-based”. Firms report feeling more positive about hiring and investment, yet their own trading activity stays subdued, with weak profitability and lack of demand the main constraints.

That gap matters. Optimism is a leading indicator only if demand follows, and Infometrics’ slower path suggests it will follow gradually. NZIER also flags that architects see a soft construction pipeline over the next two years, despite strong June quarter building activity.

Huang’s warning to whoever forms the next government is worth heeding: fiscal choices are constrained, and measures that materially increase aggregate demand could add to inflation pressures. In plain terms, campaign sweeteners risk being paid for in mortgage and overdraft rates. Businesses should be sceptical of any promise that sounds like free stimulus.

Plan for 2027, not this summer

Three forecasters, Infometrics, Treasury and NZIER, tell a consistent story. The economy is growing, exports and tourism are pulling their weight, and jobs are edging up. But the cost of capital is rising in the near term, and demand is not yet strong enough to carry a wave of new hires or big capital projects.

The sensible response is not gloom, it is discipline. Lock in what certainty you can on borrowing, protect margin rather than chase volume, and treat hiring as a 2027 decision unless your own order book says otherwise. The recovery is real. It just wants patience, and a balance sheet that can wait for it.

Sources

• RNZ: Economic recovery slow but no mirage – Infometrics (2026-10-16)
• Newstalk ZB: NZ economy recovering slowly, unlikely to go backwards – Infometrics (2026-10-16)
• Infometrics: Uncertainty dampens but doesn’t derail the economic recovery (2026-10)
• Stats NZ: Gross domestic product (GDP) (2026-09-17)
• RNZ: Is our economic recovery coming at last? (2026-07-17)
• Newstalk ZB: Economic growth expected to hit four-year high in 2027 as long as fuel prices remain stable (2026-07-17)
• NZIER: New Zealand’s fragile economic recovery poses challenges for the next Government, NZIER Insight 132 (2026-10-14)