‘Recovery finally coming’ as forecasts turn more positive

New projections from NZIER and Kiwibank point to a soft patch for the New Zealand economy in the near-term, followed by a more robust recovery in 2026–27 – a backdrop that matters for mortgage advisers watching refixes, house prices, and credit demand.

The latest NZIER Consensus Forecasts show GDP growth of 0.9% in the year ending March 2026, before annual growth is expected to pick up to 2.8% in the following year. 

The weaker near‑term view reflects “the lower starting point of a 0.9% contraction in activity in the June quarter” and “continued reported weak demand” in NZIER’s Quarterly Survey of Business Opinion.

Beyond 2026, NZIER expects “a continued recovery in activity… as the effects of lower interest rates continue to pass through the broader economy.”

Kiwibank chief economist Jarrod Kerr (pictured left) is similarly upbeat about the medium term. 

“We continue to forecast a robust recovery for the Kiwi economy. We’re growing in confidence as interest rates have been (belatedly) set at stimulatory levels,” Kerr said, adding: “We expect the Kiwi economy to expand around 2.4% next year, and by around 3% in 2027 – if no adverse external shocks come about.”

Refixes and lower rates to support spending

For mortgage advisers, NZIER highlights a key support for households over the next year.

“With over 70% of mortgages due for repricing within the next 12 months, it is expected that the OCR cuts to date will continue to support the recovery in retail spending as households face lower mortgage repayments at repricing,” said Ting Huang (pictured right), NZIER senior economist.

The institute has revised household spending growth higher for 2026 through 2029, citing rising consumer confidence and “retail sales volume… increasing gradually.” 

The residential investment outlook has also been upgraded for 2026 to 2028, reflecting expectations that lower interest rates “will support a recovery in residential investment over the coming years,” consistent with a stronger pipeline of construction work in architects’ order books.

Kerr reports similar signals in Kiwibank’s internal data: “Household budgets are improving, despite the heavy burden of higher prices on essentials," he said. "Our card data shows a spreading of consumption into more fun, discretionary spending. That’s a good sign.”

Housing market: modest recovery and investor return

Kiwibank expects the housing market to slowly shake off its plateau.

“The housing market is also set for firmer gains in 2026,” Kerr said. 

Balanced against ample supply and weak population growth, “we expect house prices to rise around 2-3% next year. That’s not exactly shooting the lights out, but it is an improvement from trekking sideways over the last two years,” he said.

Kerr also notes a shift back toward investor activity: “Another missing piece of the puzzle that is now falling into place is the return of the investor… In the last six months, lending to investors is almost 10% higher than lending to FHB.”

OCR now stimulatory, but markets risk jumping the gun

Both reports stress that monetary policy has moved into supportive territory after aggressive cuts, though Kerr worries RBNZ’s messaging has pushed wholesale rates higher than necessary.

NZIER points out that in November, “RBNZ cut the OCR by another 25 basis points to bring it to 2.25%” and that its projected OCR track “indicated a high chance of 2.25% being the OCR trough for this monetary policy cycle,” with short‑term interest rate forecasts revised lower in line with that guidance.

Kerr argues that while the cash rate is now stimulatory, communication missteps have led markets to price in rate hikes too early. 

“There’s a new gust of headwind facing the Kiwi economy. It’s the premature rise of retail rates. And it’s a move caused by yet another misstep from the RBNZ,” he said, noting that “some fixed mortgage rates have actually risen following the November cut.”

Even so, Kerr emphasises that “interest rates today are significantly lower than they were this time last year” and that at 2.25% “we’re at levels that matter. Levels that should relieve household budgets, entice investors to invest, and encourage businesses to expand and hire.”

Inflation easing back toward 2% target

NZIER expects inflation to drift back towards RBNZ’s mid‑point target. Although CPI edged up to 3% in the September quarter, it says “excess capacity in the New Zealand economy” should “drive a continued easing in domestic inflation pressures and bring inflation to around the 2% RBNZ inflation target mid-point over the coming year.”

Kerr is similarly relaxed: “And no, we’re not worried about inflation. Recessions kill inflation. And that weed has had a proper dose of economic herbicide.”

For mortgage advisers, the combined message is that 2025 may still feel patchy, but lower refix rates, a gradually improving housing market and a more supportive OCR setting should underpin a more constructive environment for borrowers through 2026 and 2027.

For more insights, read the Kiwibank and NZIER reports.

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