Low rates, exports, and AI underpin cautious NZ rebound
ASB says New Zealand’s economy is moving “in the right direction” after a harder 2025 than many expected, with low interest rates, stronger balance sheets, and a weaker New Zealand dollar supporting the outlook.
“After a tougher than expected 2025, we’re now seeing more encouraging signs. The headwinds haven’t disappeared, but momentum is building,” ASB said.
“The key takeout is that New Zealand is moving in the right direction and 2026 holds the most promise in a number of years. There’s cause for optimism in 2026, even if we still need to navigate some uncertainties along the way.”
The bank notes the global economy has remained resilient “despite clear risks”, while New Zealand’s low interest rates are supporting activity and export conditions are being boosted by the lower currency.
Senior economist Mark Smith and economist Wesley Tanuvasa (pictured left to right) outline five key themes on ASB’s 2026 Watchlist.
1. Tug‑of‑war recovery: low rates vs cost‑of‑living drag
ASB says 2026 growth will be driven by low rates, solid export demand, and a rebound in private‑sector spending after a period of cost‑cutting and restraint, but warns multiple headwinds remain.
“Low interest rates, solid export demand and the recovery in private sector demand after a period of cost cutting and restraint are expected to drive the expansion over 2026,” Smith and Tanuvasa wrote.
At the same time, the economy is still 45,000 jobs short of its 2023 peak, unemployment is at a nine‑year high of 5.3%, and living costs sit about 30% above pre‑COVID levels, keeping households cautious and weighing on interest‑rate‑sensitive sectors like retail and construction.
“The key risk is that the Tug-o-War isn’t over. Monetary policy works, but headwinds may again prove to be frequent and persistent,” the economists said.
2. Interest rates near a floor, next move likely up
The official cash rate (OCR) is sitting at 2.25% after 200 basis points of cuts in 2025, which ASB describes as close to a “Goldilocks” neutral zone of 2.5–3.5%.
While the next move is more likely to be a hike than another cut, the bank is wary of ruling out further easing if the outlook deteriorates.
“Our current forecasts suggests that just 50bp of tightening will be needed from early 2027, but the risk is a larger and earlier OCR hiking cycle, with markets having close to 40bps of OCR hikes priced in for 2026,” the economists said.
3. Election year risks for fiscal and rate settings
With New Zealand heading into a 2026 election, ASB warns that any pre‑election spending splurge could put upward pressure on interest rates.
“There is always the temptation to loosen the fiscal purse strings to attract more of the vote, but with the economic expansion underway, pro-cyclical fiscal policy would result in NZ interest rates being higher than they would otherwise be,” the bank says.
ASB argues consolidation is needed to rebuild fiscal buffers and keep borrowing costs contained.
“We repeat our long held view that consolidation is needed to restore fiscal buffers, but that fiscal policy also needs to be future focused.”
4. AI investment a long‑term opportunity, energy a constraint
ASB sees artificial intelligence as a key medium‑term opportunity for New Zealand, with AI adoption and data‑centre investment potentially lifting productivity and growth.
“ASB research suggests that AI adoption could add around $20bn to NZ real GDP by 2040,” the bank said, pointing to New Zealand’s 85% renewable share of electricity generation as a competitive advantage.
However, it cautions that AI is “energy thirsty” and that energy security remains a concern.
“It is vital that NZ has the necessary infrastructure in place to harness the benefits of AI. Energy security remains a significant concern for the NZ economy,” ASB said.
5. Volatile ‘New World Order’ keeps global risks elevated
On the international front, ASB expects ongoing policy unpredictability from the Trump administration and warns that trade and tariff decisions, US fiscal policy and global bond markets will continue to shape New Zealand’s external environment.
“Those hoping for a more settled global scene in 2026 than in 2025 may be disappointed if re-cent events are anything to go by,” the bank said, noting that while global growth has held up, fiscal and geopolitical risks remain.
“We are hoping that the global scene settles, but we could be faced with ongoing volatility and policy fluidity over 2026.”
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