New Zealand’s output per capita remains persistently below the most advanced OECD countries and convergence towards the living standards of the OECD top half has stalled. While labour utilisation is strong, with increasingly high participation and employment rates, the investment rate, and especially labour productivity, are low.

Increasing investment and productivity growth demands continuing broad structural reforms, including encouraging greater foreign direct investment by reducing screening restrictions as well as faster adoption by businesses of digital technologies. Simplifying licensing and permitting processes would also help speed up infrastructure investment. Putting the economy on a sustainable growth path requires more research and investment to reduce agricultural and industrial emissions through technological solutions.

After contracting in 2024, the New Zealand economy is projected to expand by 0.7% in 2025, 1.8% in 2026 and 2.8% in 2027. Growth will be supported by lower interest rates, improving household real incomes, buoyant tourism, and firm commodity export earnings. However, weak confidence, high energy costs, easing net immigration, and elevated uncertainty surrounding trade restrictions are expected to remain headwinds to the near-term recovery. Inflation is projected to remain within the central bank’s target band, easing towards 2%. The unemployment rate is projected to decline from its peak in 2025.

Fiscal consolidation needs to proceed steadily to ensure fiscal sustainability, while safeguarding investment in infrastructure and climate resilience. With activity well below capacity and inflation expectations well-anchored, the central bank could continue easing in the near term, with scope to adjust the pace. Structural reforms are required to lift persistently weak productivity growth, including securing a more reliable and affordable energy supply, deepening the capital market, fostering a more open regulatory environment, and improving health sector efficiency to manage ageing-related pressures.