There’s reason for optimism about the New Zealand economy and business conditions over the next 24 months, according to Infometrics’ latest forecasts, as the post-inflation recession gets put behind us and interest rates return to more normal levels. Although economic growth is not forecast to get above 2.5%pa during 2025 and 2026, the recovery will be underpinned by increased household spending, a more stable housing market, and strength in export commodity prices.

“GDP growth averaging 0.5% per quarter during 2025 is not rapid, but it would be a marked improvement on the 0.0% flat quarterly average throughout 2023 and 2024,” says Infometrics Chief Forecaster Gareth Kiernan. “Household spending has already shown signs of turning around in the second half of last year. Although people are likely to remain cautious with their spending in the near term due to the soft labour market, we expect more momentum in spending growth to emerge in the second half of 2025.”

Infometrics estimates that the decline in mortgage payments being made by households since October last year is enough to free up about $8m/week for additional spending. With the official cash rate forecast to reach 3.25% by mid-2025, the boost to household spending will reach to $45m/week by the end of this year, equivalent to 1% of private consumption, as people continue to roll onto lower fixed mortgage rates.

“By mid-2025, we expect the Reserve Bank will have finished cutting in this cycle and be content to let the lagged effects of easing monetary conditions flow through the economy during the rest of 2025 and 2026,” says Mr Kiernan. “However, the scope for further interest rate cuts is becoming more limited. The weaker New Zealand dollar, higher fuel prices, and concerns about more persistent price pressures internationally could cause a small uptick in inflation later this year.”

Higher commodity prices for meat and dairy, alongside continued strength in horticulture prices, will flow into better economic conditions in provincial areas throughout 2025. However, expectations of stronger export incomes also need to be viewed in the context of heightened uncertainty about the global geopolitical and trade environment. US tariffs could undermine the growth in our exports to the US that has been achieved over the last five years, as well as adding to the problems faced by the Chinese economy and hurting our export potential in that market too. New Zealand has been actively broadening its trade networks over the last two years, completing several new free-trade agreements to grow exports and to reduce our reliance on exporting to China.

One area that remains unlikely to directly contribute much to faster economic growth over the next few years is the government sector. “Government spending will be constrained by the need for a tighter fiscal approach,” says Mr Kiernan, “although some pick-up is possible ahead of next year’s election to try and appease uneasy voters. Government investment spending is also likely to accelerate in 2026, reflecting the government’s desire to deliver on its promise to get things done.”

ENDS

More details about Infometrics forecasts can be found on the respective Building and Transport forecasts pages on the Infometrics website.