After contracting in 2024, the New Zealand economy began to recover in the second half of 2025. It is projected to grow by 1.4% in 2026 and 2.2% in 2027, supported by earlier monetary easing and resilient exports. However, the recovery remains fragile, with labour market conditions still soft and confidence weakened by higher energy costs and elevated uncertainty. Inflation, which remained slightly above the 1–3% target band in early 2026, is projected to rise further in 2026 as higher energy prices feed through to transport and other input costs, before moderating in 2027. Risks remain tilted to the downside, including from energy supply.
Fiscal consolidation should proceed steadily to ensure sustainability, while retaining flexibility if downside risks materialise. Energy-related support should remain temporary and targeted and maintain incentives to reduce energy consumption. Monetary policy should remain data-dependent, ensuring that inflation expectations stay anchored while balancing renewed inflation pressures against remaining spare capacity. Structural reforms are needed to lift weak productivity and strengthen resilience, including improving energy security and affordability, deepening capital markets, strengthening competition and advancing digitalisation and innovation, including in the health sector.