OECD Economic Outlook, Volume 2025 Issue 2

New Zealand

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.

Modest recovery is underway amid easier financial conditions

Recent monthly indicators point to signs of a gradual improvement, supported by lower interest rates and strong earnings from commodity exports. Headline inflation has remained within the central bank’s 1–3% target band, albeit at the upper end, reflecting higher food and electricity prices. Business and consumer confidence remain weak, weighed down by persistent uncertainty and continued labour market slack. The unemployment rate reached 5.3% in the third quarter of 2025, the highest since 2020, while net inward migration has rapidly declined. Nevertheless, tourism continues to strengthen, and housing activity and construction are showing early signs of recovery in line with lower borrowing costs.

Trade restrictions, including the additional 10% minimum tariff imposed by the United States in April 2025 and the subsequent increase to 15% in August, have weighed on export price expectations. However, the immediate impact was partly offset by a weaker exchange rate, and the dairy and meat sectors, including beef, remain supported by solid external demand. The rollback of the US tariff on beef in November will help further mitigate the impact on exports to the United States. Although elevated electricity prices and high transport costs continue to erode competitiveness, trade diversion effects have helped lower some import prices.

New Zealand

Source: Statistics New Zealand; Reserve Bank of New Zealand; and ANZ.

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New Zealand: Demand, output and prices

Statlink

Monetary policy is easing, while fiscal policy will remain broadly neutral

With inflation within the target range and expectations well-anchored, the central bank has reduced the official cash rate by a cumulative 325 basis points since mid-2024 to 2.25% in November 2025. Further monetary easing could be warranted should activity remain weak. On the fiscal side, Treasury’s long-term projection warns that government debt could rise to around 200% of GDP by 2065, underscoring the importance of credible fiscal reform. The fiscal stance is expected to remain broadly neutral, while persistent spending pressures slow the pace of adjustment. Stronger growth is projected to reduce the government deficit by around 0.4 percentage points over 2025–27.

A gradual recovery is expected but risks remain elevated

Economic growth is projected to be modest, at 0.7% in 2025, before the recovery gathers pace to 1.8% in 2026 and 2.8% in 2027, as lower interest rates, gradually improving real household incomes, and rising confidence strengthen private consumption and investment. Despite elevated trade restrictions, exports are expected to benefit partly from buoyant tourism and solid demand for dairy and meat. Inflation is projected to be 2.8% in 2025, before easing towards the 2% midpoint of the target band, reflecting spare capacity and easing tradables inflation pressures. Risks include a further escalation of trade tensions or climate-related events such as floods or droughts, which could weaken exports and constrain agriculture and hydro-electric generation. On the upside, a faster-than-expected pass-through of monetary easing and a quicker pickup in business investment, helped by the “Investment Boost” introduced in May 2025, may lift growth more rapidly.

Deepening capital markets and attracting foreign investment are crucial for enhancing productivity

Ensuring fiscal sustainability while supporting investment and productivity growth remains a key priority. The government should continue a steady pace of consolidation to place public debt on a firm downward path, while preserving room for supporting R&D and innovation, capital market development, and green, digital and transport infrastructure. Improving spending efficiency, particularly in the health sector, and managing ageing-related fiscal costs will be essential to rebuild fiscal buffers. Reviving productivity will require deeper and more competitive capital markets and a more open, predictable regulatory environment to improve access to long-term financing and attract foreign investment. Increasing competition and easing market-entry barriers in banking, gas and electricity markets would help boost investment and foster innovation, while accelerating investment in firming capacity, renewable generation, and transmission infrastructure is vital to ensure a reliable and affordable energy supply.