Kiwi advisers juggle recovery hopes, wage and rate risks
New Zealand’s 2026 outlook is improving, but BNZ is warning that conditions will still feel tough for many Kiwis even as confidence and activity lift.
BNZ head of research Stephen Toplis says the bank enters the new year “quietly confident it will prove to be a much better one than any of the past three years.” BNZ is forecasting the economy to expand 2.5% in calendar 2026, with “economic expansion in every quarter of the year.”
However, Toplis stresses that “‘better’ and ‘good’ are two very different things,” and warns that both households and businesses will “continue to struggle with elevated costs,” while “the household sector is unlikely to see much joy on the job front until much later in the year.”
QSBO rebound backs recovery story
The latest NZIER Quarterly Survey of Business Opinion (QSBO) is now reinforcing BNZ’s cautiously optimistic view.
The QSBO shows confidence surging, with a net 39% of firms expecting better economic conditions over the coming months, up from 17% in September and the strongest reading since early 2014.
Firms are also reporting clear improvements in their own trading activity, with only a small net share seeing declines, suggesting the recovery is taking shape as lower interest rates feed through.
Economists say the survey points to a more upbeat business mood, rising activity and strengthening expectations for 2026.
Investment, hiring, and rates in the spotlight
Toplis highlights three swing factors for the 2026 outlook: weaker dairy prices, political uncertainty, and household incomes against “a backdrop of lower mortgage interest rates and ongoing weakness in employment growth.”
BNZ is “forecasting total fixed capital formation to increase 6.1% in calendar 2026, its strongest pace of expansion since 2021,” but warns that uncertainty around election outcomes and policy directions could delay investment decisions in both housing and business.
QSBO indicators point the other way for now, with sentiment feeding into stronger hiring and capex plans. Hiring and capex plans are now clearly turning up.
NZIER says a net 5% of firms added staff in the December quarter and a net 22% plan to hire in the next three months, while a net 11% intend to lift building investment and 7% plan to increase spending on plant and machinery.
Economists point to the rebound in investment intentions for both buildings and equipment, aided by lower rates and policy support such as the 2025 Investment Boost, as a key sign confidence in the upswing is strengthening.
Labour market lag and modest wage gains
BNZ’s projections imply employment will increase by 80,000 people across 2026, but Toplis flags this as “our biggest forecasts risk,” citing “extremely low flows of labour from the unemployed category into the employed category” and potential skill mismatches. With “the broader labour market still in a position of excess supply,” he expects wage growth to remain low with “modest real increases at best.”
QSBO labour indicators show early tightening at the skilled end, with a net 2% of firms now finding it difficult to hire skilled staff, while a net 15% still find it easy to hire unskilled workers. Economists say this mix suggests the unemployment rate is near its peak of around 5.3% and should gradually ease over 2026.
For indebted households, Toplis sees “a huge boon for the household sector” as more borrowers roll onto lower fixed mortgage rates, delivering a “significant” cash‑flow boost to retail spending. Even so, he cautions that “it’s not all good news” for non‑mortgaged and deposit‑reliant clients.
Inflation contained, OCR on hold before next hiking cycle
On inflation, Toplis expects Q4 CPI at 0.3% for the quarter and 2.8% for the year, broadly in line with the RBNZ’s 2.7% pick.
NZIER’s QSBO shows cost and pricing pressures “broadly contained,” with construction the notable outlier as “a net 31% of building sector firms cut prices amid weak demand.”
NZIER concluded: “With demand starting to recover but inflation remaining contained, we expect no further OCR cuts in this monetary policy cycle. We forecast the OCR to trough at 2.25% until the Reserve Bank of New Zealand commences increasing the OCR in the second half of 2026.”
For Kiwi advisers, the message is clear: 2026 should feel meaningfully better than the last three years – but managing client expectations around still‑tight budgets, a lagging labour market, and a future OCR hiking cycle will remain critical.
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