The New Zealand economy is expected to face disruptions over the next two years, Infometrics said.
The economics consultancy has published its latest update on regional economies.
Provisional estimates from the Infometrics Quarterly Economic Monitor indicate that economic activity increased by 0.7% in the March quarter and by 0.4% over the year.
According to Infometrics principal economist Nick Brunsdon, “The March 2026 quarter showed further widespread economic recovery, with 12 out of 16 regional economies expanding.”
“We were seeing further improvements in GDP around much of the country, but we were still seeing pretty weak employment.
“South Island employment growth continues broadly unabated, in contrast to the top of the country, where Waikato was the only North Island region that didn’t face employment declines this quarter.
“We’re still seeing jobs being lost, particularly in construction … things weren’t perfect before the Iran war, and with the implication of higher oil prices and how that flows through everything, we’re expecting that to push recovery further out.”
He said economic activity was concentrated in a group of “high-growth regions,” which expanded by more than 1% over the quarter, including Bay of Plenty, Waikato, and much of the South Island.
Strong returns from the primary sector are providing support, although the recovery has become increasingly broad-based, with more industries now expanding.
He said activity in the primary sector was strong, helping to support provincial economies.
Prices for dairy, meat, and horticultural exports have eased slightly but remain at elevated levels. “Milk solid production has lifted 4% per year, boosting GDP in the regions. However, farmers are also about to bear the brunt of higher costs for fuel, fertiliser, and plastics stemming from the Iran war.”
“The challenge is that just because farm returns are up, it doesn’t necessarily mean that they need to employ more people on the farm, and so we are still seeing employment recovery lagging the broader economic recovery.”
“I think the other interesting angle is that when we look at the industries that are driving growth, numbers one, two, and three are all sort of public sector, population-based industries: health, education, and public administration, and that’s great if those things are growing, and that means that you can get better service at your local hospital, but that’s not really the underlying economy.”
“That is us serving our own local needs; it is still taking a while for the private sector to really kick off. You can’t expect your public sector to continually drive your economic growth.”
The impact of the Iran conflict began to be felt toward the end of the period.
Brunsdon said that broader business and household confidence was weakened as rising fuel costs took effect, with expectations of an economic recovery pushed out once again.
Marketview card spending data indicated a 0.3% increase in retail spending in the March 2026 quarter compared with the same period a year earlier.
“Softness in construction and manufacturing continue to hold the economy back, with continued higher input costs like energy, restrained demand, and work ongoing to determine what the new normal looks like for these industries,” Brunsdon said.
“These two industries have an outsized impact on the economy, being the second and third largest industries for employment.”
He said that, given developments so far in the Iran conflict and the resulting oil price shock, the effects are expected to reverberate for two years or more “because it takes time for it to flow through to products that use oil and transport, bringing goods to supermarkets, and then it keeps echoing through as it knocks up the prices of other things and then dampens demand for those things as well.”