The direction changed, the numbers didn’t
After a brutal stretch, the mood has lifted. Infometrics is forecasting economic growth reaching a four-year high of 2.7% in the middle of next year, driven mostly by the collapse in fuel prices. Diesel has fallen from around $3.80 a litre at its peak earlier in 2026 to about $2.40, stripping a major cost out of nearly every business that moves goods or people.
Infometrics chief forecaster Gareth Kiernan said that with diesel back near $2.40, “sustained cost pressures on businesses are much less pronounced than we had initially feared”. He expects the OCR to reach 3.0% by the end of 2026 and 3.5% by the end of 2027, but as a response to a stronger economy rather than an emergency inflation fight. That is a genuinely better picture than three months ago.
The problem is what sits underneath the sentiment.
Confidence up, activity flat
The NZIER Quarterly Survey of Business Opinion for the June quarter shows the split cleanly. A net 12% of firms expect general economic conditions to improve, up from net 1% in March. But only net 1% reported increased activity in their own business. Firms feel better about the country. They are not busier themselves.
The hiring and investment numbers make the gap worse. A net 10% of firms cut staff in the June quarter, and a net 3% plan to cut investment in buildings, plant and machinery over the coming year. NZIER’s Christina Leung has described this phase as a slow grind back rather than a rebound, and the data backs her.
The confidence lift is partly an accident of timing
Here is the detail most coverage skated over. Westpac senior economist Michael Gordon notes that nearly all QSBO responses arrived on two dates: June 10, when sentiment read net 5% negative, and June 17, after the US-Iran Memorandum of Understanding was announced, when it read net 20% positive. With hostilities since resumed, Gordon concludes the first batch is probably more representative of where firms actually sit. Read the headline confidence number as a real signal at your own risk.
The inflation trap inside the good news
The pricing data is the part that should worry any firm planning to expand on cheap credit. The share of firms reporting higher costs rose from a net 37% to over half at 54% in the June quarter. More telling, a net 41% of firms raised prices last quarter, the highest since September 2023, and a net 54% intend to raise prices in the next three months, the highest since March 2023.
Leung warned these results point to a heightened risk of high inflation persisting. ASB’s Jane Tuffley forecast CPI rising to about 4.1% in the year to June 2026 before easing. If that pass-through embeds, the Reserve Bank may have to hold or lift rates into a weak recovery, the single scenario that hurts firms that have already committed to growth.
Consumers aren’t back and neither is hiring
The demand side offers no cover. Retail card spending fell 1.4% in June, with apparel down 4.2% year-on-year and hospitality down 1.4%. Households are, as BusinessNZ’s Katherine Rich put it, still holding onto their money for fuel, food and other essentials.
The labour market is the hard constraint. The services sector, roughly three-quarters of the economy, edged back into growth with a PSI of 50.6, but its employment sub-index sat at 48.8, below 50 for 31 straight months. BNZ head of research Stephen Toplis said that taken at face value, “the services sector in totality is shedding labour rather than employing more people”. Infometrics expects unemployment to stay around 5.4% until mid-2027. No jobs growth means no wage-driven spending recovery.
What’s actually bankable
Some indicators have genuinely turned and can carry a decision. Fuel cost relief is real, with diesel down about 37% from its peak. Inflation tail-risk from the oil shock has eased. Tourism has recovered to 93% of pre-Covid visitor levels, and dairy and meat exporters continue to ride strong global demand.
Everything else is not decision-ready. Consumer spending is contracting in discretionary categories, unemployment is rising, investment intentions are marginally negative, and housing has been stagnant for three years, which HSBC’s Paul Bloxham cites as the core drag on the recovery. Tuffley’s summary is the right frame: the recovery “has not been derailed, but it has been delayed”. The question for firms is how long delayed, and at what cost to anyone who acts as if the rescue has already arrived.
Sources
- Is New Zealand’s economic recovery coming at last? (1News) (2026-07-18)
- Is our economic recovery coming at last? (RNZ) (2026-07-17)
- Brief lull in Middle East war pushed up business confidence (RNZ) (2026-07-14)
- Services sector back in growth, but barely (RNZ) (2026-07-13)
- Bank says NZ economy finally turning the corner, ‘recovery delayed not derailed’ (1News) (2026-07-06)
- NZIER QSBO shows a pick-up in business confidence as concerns over the fuel crisis ease, July 2026 (2026-07-14)
- First Impressions: NZIER QSBO June quarter 2026 (Westpac) (2026-07-14)
- New Zealand business confidence lifts in the June quarter but rising costs point to sticky inflation (Newswire) (2026-07-16)
- Services Landscape – BusinessNZ Performance of Services Index June 2026 (2026-06)