Westpac economists have painted a grim near-term outlook for New Zealand’s economy, citing a mix of headwinds that will weigh on households and businesses. The bank has revised its inflation forecast, now expecting a spike to 4.2 percent by the end of the year, up from earlier projections. This revision is driven by sharply higher global fuel prices and a more than 4 percent drop in the New Zealand dollar since September.
Households face additional pressure from a weak housing market and higher interest rates. Westpac chief economist Kelly Eckhold noted that the expected stabilization of the housing market in the second half of the year has not materialized, with sales volumes weakening and houses taking longer to sell. The bank now forecasts a 1.4 percent decline in the housing market this year, further crimping consumer demand heading into the holiday season.
Despite the near-term challenges, Westpac anticipates a stronger economy by 2027, with growth expected to rise to 3 percent. The bank also maintained its forecast for the Reserve Bank of New Zealand (RBNZ) to hold the official cash rate (OCR) steady at 2.75 percent in October, with a 25 basis point increase in December and two further hikes in early 2027.
Eckhold highlighted that the election outcome introduces uncertainties to the 2027 growth outlook, though the exact impact remains hard to quantify at this stage. The combination of high fuel costs, a weak housing market, and rising interest rates is expected to prolong economic pressures in the short term.