ASB forecasts slow economic recovery for New Zealand households
ASB, a major New Zealand bank, has released its latest economic forecast, suggesting that households will not see significant improvement until next year. The bank predicts two more official cash rate (OCR) hikes before Christmas to combat inflation driven by rising fuel prices. ASB chief economist Kim Mundy described 2026 as "fickle," with economic recovery seeming close but repeatedly slipping away. She noted that oil prices, which had fallen mid-year, are now rising again, and there is no clear end to the conflict driving these fluctuations.
Despite global shocks, the New Zealand economy has continued to expand, though growth remains uneven. Consumer spending dropped in the second quarter after six consecutive increases, and while a modest rebound is expected in the third quarter, households are likely to remain cautious. Unemployment hit an 11-year high of 5.6% in the second quarter and is expected to stay in the mid-5% range until late next year. Mundy noted that labor is easy to source due to elevated unemployment and underemployment.
The housing market has also seen a downturn, with house sales falling back to levels last seen in mid-2024. ASB forecasts house prices will flatline this year before rising 3.5% next year, but it could be 2029 before prices return to their 2021 peaks. Structural shifts, such as slower population growth and a more responsive housing supply, suggest a more moderate housing cycle than in the past. This could mean smaller wealth effects for households, as the economy becomes more income-led rather than driven by capital gains.
Mundy emphasized that the outlook remains uncertain, with factors like oil prices, a potential super El Niño, and population growth trends all playing a role. She cautioned that while some sectors, such as rural and tourism, are recovering, urban areas reliant on domestic demand are struggling. The economy could look different on the other side of these challenges, with housing market recovery lagging behind broader economic improvements.