Westpac New Zealand Economics Research Hub

Westpac New Zealand Economics outlines a challenging macroeconomic environment characterized by slowing growth and persistent inflationary pressures exacerbated by geopolitical conflict in the Middle East. With 2026 GDP growth projections revised downward to between 1.5% and 1.8%, the economy is grappling with high fuel costs and a weakening labor market where unemployment remains sticky at 5.3%. Despite these growth headwinds, headline inflation remains elevated above 4%, prompting expectations for a definitive RBNZ tightening cycle to commence in the second half of 2026. Westpac anticipates the Reserve Bank will maintain the OCR at 2.25% in the immediate term while materially upgrading its forecast track toward a 3.2% terminal rate. Fiscal conditions are also tightening, with the upcoming May Budget likely to reveal a $7-9 billion increase in bond financing requirements as net core Crown debt peaks at 48% of GDP. While the primary sector remains a resilient bright spot, the broader outlook for housing and construction is subdued, leading analysts to suggest longer fixed mortgage rates for households facing an upward policy rate trajectory.