Westpac economists have forecast strong GDP growth for 2026 in an upbeat new report that signals New Zealand’s economic recovery is gaining momentum.
“After growing an estimated 1.8% over 2025, we expect economic activity will lift by 3.3% in 2026 and 2.7% in 2027,” Westpac chief economist Kelly Eckhold says in the Economic Overview report.
“Growth was unexpectedly strong in the second half of 2025 and should continue through 2026 and 2027.”
The bank says economic growth continues to be supported by firm export commodity prices, a supportive exchange rate and the now-low level of short-term interest rates.
Labour market recovery
The stronger economic outlook is expected to drive improvements in the labour market, with unemployment forecast to fall from 5.4% to around 4.7% by the end of 2026 and to 4.4% over 2027.
“Business and consumer confidence has accordingly lifted. Jobs growth should follow resulting in unemployment gradually falling,” Eckhold says.
The report notes there has been a noticeable improvement in the tone of economic data in recent months, in contrast to the soft patch experienced through mid-2025. Business confidence surveys and job advertisements point to a lift in hiring intentions.
Export strength drives activity
Resilient global growth, despite simmering geopolitical tensions, is providing a tailwind to externally-orientated sectors. The bank estimates New Zealand’s largest trading partners grew 3.2% over 2025 on a trade-weighted basis.
Strong export performance has helped narrow the external deficit, with the volume of goods exports estimated to have grown 3.0% in 2025. This was driven by rising dairy exports, solid growth in horticulture and an encouraging lift in exports of metal and machinery products.
The improving global environment has helped drive demand for agricultural exports, with international travel also continuing to rebound towards pre-Covid levels. This has benefited some regions more than others, with the South Island generally faring better than the North Island.
Business investment upturn
An upturn in business investment is now well advanced despite subdued economic conditions over the past year. The bank expects the Government’s Investment Boost accelerated depreciation scheme will have more impact over 2026, given typical lags associated with investment decisions.
Growth in business investment is expected to be particularly strong in sectors linked to agriculture, with confidence running high on the back of strong export prices.
Interest rate outlook
The Reserve Bank of New Zealand’s stimulatory stance is still working its way through the economy, with average borrowing costs set to continue falling over 2026. However, Westpac expects the RBNZ to start raising the Official Cash Rate towards more neutral levels from late 2026 as spare capacity is eroded.
The bank forecasts the OCR will rise from the current 2.25% to 2.50% by the end of 2026 and 4.00% by the end of 2027.
Despite the positive outlook, risks remain around geopolitical tensions and the potential impact of the 2026 election, which could see growth take a hiatus mid-year if political uncertainty emerges.
