New Zealand’s economy is beginning to turn a corner, with spending lifting and interest-rate cuts starting to flow through household budgets, according to ASB’s latest Economic Forecast Update.
The bank expects growth to strengthen through 2026 as lower mortgage rates, easing inflation and improving export conditions support activity, although the recovery remains uneven and sensitive to global risks.
ASB chief economist Nick Tuffley says the impact of rapid mortgage-rate declines through 2025 is now feeding into spending behaviour.
“Consumer spending has already been lifting for a year, and in the September quarter consumers went nuts in electrical and electronics stores. Not only that, they were busily buying up cars to rush themselves around to all the sales,” Tuffley says.
He says interest rates have likely fallen as far as they will, noting the Reserve Bank has “very likely done enough to get the recovery going”.
ASB’s report says GDP is recovering after the shock contraction in the June quarter and is expected to rise more than 2.5% for a period, supported by slightly stimulatory interest rates and strong food export revenues. Spare capacity in the economy remains high, meaning the Reserve Bank needs growth above the long-term speed limit of about 2% to absorb slack.
Exports are expected to strengthen, and New Zealand’s shipments to the United States have so far been resilient despite this year’s tariff shock. About 25% of US-bound exports are now exempt from the 15% tariff. New Zealand has also increased exports to China and Europe over the past year.
Household spending began lifting in late 2024 as the peak in average mortgage repayments passed. Durable goods such as vehicles and electronics have seen strong volume growth, supported by a gradual rise in house sales, although non-durable spending such as food has remained flat due to higher food-price inflation.
ASB expects spending to become more broad-based through 2026 as households refix onto lower mortgage rates, employment growth lifts incomes and inflation moderates.
House prices are forecast to rise 3–4% in 2026 after a flat 2025, with interest-rate cuts providing the main support. High listings and muted population growth will keep gains modest. The bank says conditions for first-home buyers remain favourable, with lower test rates and more stock on the market.
Annual inflation reached 3% in the September quarter, but underlying domestic pressures continue to ease. Wage growth has slowed as unemployment has risen, and spare capacity remains high after nearly three years of weak economic activity. ASB expects traded-goods inflation to moderate next year, helping headline inflation move closer to the 2% midpoint.
The Reserve Bank cut the Official Cash Rate to 2.25% in November and is expected to remain on hold. ASB says the risk is tilted towards further easing in 2026 if inflation undershoots. Swap rates have likely reached their lows.
The New Zealand dollar has underperformed major currencies as OCR cuts outpaced peers, but ASB expects it to strengthen over 2026 as domestic and global conditions improve and risk appetite returns.
After job losses across IT, media, professional services and public administration, ASB expects employment conditions to firm through 2026. Job ads are trending upward, and the unemployment rate is forecast to ease from 5.3% to below 5% by late 2026.
The bank says 2025 “should close the door on the bad news”, but warns the recovery remains contingent on global tariff stability, consistent commodity demand, easing inflation and improving household confidence. ASB expects the recovery to continue, but says it remains vulnerable to renewed cost pressures or weaker global conditions.
