Economic Recovery Amid Geopolitical Uncertainty

The global economy is showing signs of improvement, but uncertainty remains due to geopolitical events. The Middle East ceasefire proved short-lived, causing energy prices to rise. However, sharp falls in refined fuel costs may provide a short-term cap on retail fuel prices.

Global growth forecasts have rebounded from downgrades caused by the oil shock in March-May. Consensus has reverted to a 2.6% forecast expansion for the coming 12 months, driven by the positive offset from the AI capex boom, particularly in North Asian manufacturing and exports.

In New Zealand, signs of life are evident in domestic data, supporting the view that an underlying recovery is underway. Momentum is expected to build with growth of 1.6%y/y forecast for this calendar year, and 2.2% for 2027.