Forecasts revised for sluggish recovery
The latest NZIER Consensus Forecasts revealed a downward revision in New Zealand’s growth projections for the years ending March 2025 to March 2027.
GDP is now forecast to stagnate with zero growth in the year to March 2025, before picking up to 2.2% in 2026.
“These revisions reflect expectations for sluggish growth over the coming year,” driven by weaker business confidence and trading activity, said NZIER senior economist Ting Huang (pictured above).
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Household spending expectations lowered
The forecast for household spending has also been reduced, with growth projected at just 0.2% for 2025, down from an earlier estimate of 0.5%.
“Households have cut back sharply on discretionary spending as they face increased mortgage repayments,” Huang said.
Uncertainty over incomes, exacerbated by a slack labour market, is expected to further weigh on household budgets throughout the year, dampening overall spending.
Residential investment outlook slightly improved for 2025
While the forecast for residential investment in 2025 shows some improvement, predictions for 2026 and 2027 have been revised downward.
Despite expectations that lower interest rates will stimulate investment, mortgage serviceability remains a concern due to the weakening labour market.
“Interest rate decreases are expected to support renewed interest in residential investment, though this will be tempered by uncertainty in the labour market,” Huang said.
Export growth forecast lowered
The outlook for export growth has also been revised down for the period from 2025 to 2027.
The NZIER forecast cited weaker global demand, influenced by prior interest rate hikes from major central banks, as a key factor.
“The uncertainty over a recovery in China’s demand continues to weigh on the export growth outlook,” Huang said, highlighting the significant impact on New Zealand’s export sector.
Inflation and interest rate projections decline
Forecasts for inflation have been adjusted downward, with annual CPI inflation expected to settle at 2.3% by March 2025 and hover around 2% in subsequent years.
Interest rate projections have also been revised lower after the Reserve Bank cut the OCR by 25 basis points in August.
“The cut reflected increased concerns over the slowing economy and greater confidence that CPI inflation will become anchored,” Huang said.
Softer labour market and wage growth expected
The NZIER report also predicted slower wage growth alongside a slight uptick in unemployment for 2025 and 2026.
“The forecasts reflect expectations for a softening labour market,” Huang said, noting that the latest RBNZ Survey of Expectations supports this view, pointing to easing wage growth and rising unemployment.
Download and read the NZIER report here.
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