The economy does look like it is turning the corner after a rocky ride since last year’s sharp recession. The evidence of green shoots has been a bit more obvious in some areas lately. We expect growth will pick up to hit an above annual trend pace of 2.5+% growth over 2026 as better cashflows start to leak out of people’s wallets.

The main thing fuelling the recovery will be the low level of interest rates. Even though the RBNZ has stopped cutting interest rates now in our view, the impact will live on. The average mortgage rate only really started to fall rapidly from the middle of 2025. It’s now more than halfway through its likely fall from peak to trough, but that means there is still a substantial portion of NZ home borrowers who stand to benefit further. 

There are already signs of a greater ability and willingness to spend. Consumer spending

has already been lifting for a year, and in the September quarter consumers went nuts in electrical and electronics stores. Not only that, they were busily buying up cars to rush themselves around to all the sales.

A good rural income backdrop will increasingly help once farmers and growers ensure their financial positions are in solid shape. Although dairy prices have edged down from their peaks, this season’s milk price returns will still be at a good level. Fonterra Farmershareholders are also likely to receive a $3.2 billion capital return: some will be saved or used to pay down debt, and some will be invested into farms or otherwise spent. And beef export prices have been rocketing. 

So far, NZ is coping fairly well with the impact of US tariffs, and now around 25% of our US-bound goods have had the 15% tariff taken back off them. Even the US government has learned that you can’t mess with the price of a hamburger.

The jobs market is also stabilising after a period of overall job losses that have disproportionately hit the IT/media/telco, professional services and public administration sectors. Job ads are on the way up, and 2026 should bring strengthening employment prospects. Also a positive, the high inflation rate this year will increasingly subside over 2026, easing pressure on household budgets.

2025 should close the door on the ‘bad’ news. However, the chapter of a lower OCR also looks like it has ended. The RBNZ has very likely done enough to get the recovery going sufficiently strongly, even if it has taken longer than anticipated to show through. That means declines in borrowing rates have very likely come to an end – unless 2026 starts looking like Groundhog Year -  Nick Tuffley, Chief Economist