Global conflict, fuel costs, and weak demand leave RBNZ with hard choices
New Zealand’s economic outlook has grown murkier as the Middle East conflict sends oil prices higher and businesses and households pull back on spending, according to fresh analysis from Kiwibank and ASB.
Both banks highlight how repeated closures of the Strait of Hormuz and whiplash in ceasefire talks are fuelling market volatility just as key local indicators land.
Kiwibank economists Jarrod Kerr and Alexandra Turcu note that Kiwi firms and households have largely absorbed surging transport costs in the midst of a cost‑of‑living squeeze, draining savings and profit margins. They argue that New Zealand is unlikely to bounce back quickly from the shock, saying “we aren’t expecting a swift rebound, but more likely an achingly slow recovery once the war is over.”
ASB’s latest Economic Weekly makes a similar point, warning that “Uncertainty is economic paralysis.” In practice, the bank says businesses and consumers are taking longer to commit to major spending, lifting investment hurdles and dampening growth even before any full fuel‑supply disruption is felt.
Inflation pressure rises as growth softens
Both reports underline the challenge this poses for the Reserve Bank of New Zealand (RBNZ). Headline inflation is expected to lift again in 2026 as higher food, fuel, tobacco and housing costs flow through. ASB expects annual CPI inflation to move back above 4% over the coming year, while also forecasting a contraction in GDP in the June quarter and a higher jobless rate.
Kiwibank expects March‑quarter CPI to come in around 0.9%, keeping annual inflation near the 3.1% pace recorded at the end of 2025, but stresses that only a fraction of the quarter captures the recent oil shock.
ASB expects inflation pressure to re‑intensify later in 2026, even as Kiwibank’s March‑quarter CPI forecast suggests annual inflation will initially hold near 3.1%. Both banks see the June data as the real test of how deeply higher energy costs are feeding into prices.
RBNZ tightening path in focus
Against this backdrop, ASB’s central case has the OCR on hold until spring, then rising in a series of quarter-point moves to around 3.25% by early 2027. Yet the bank cautions that “None of those paths are without risk and potential economic costs.” Any mis‑step risks either entrenched inflation or an unnecessarily sharp slowdown.
For now, both institutions suggest the central bank will be forced to balance elevated near‑term inflation against growing spare capacity in the economy, as New Zealand awaits clearer readings from this week’s CPI and business confidence surveys.
See the Kiwibank and ASB reports for more insights.
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