ASB Bank has raised a flag of confidence over the economic outlook for next year, driven by a mix of lower interest rates, solid exports and consumer spending.
Chief economist Nick Tuffley said the economy has turned the corner after recession.
“We’re seeing clear signs that the recovery is gathering pace. Consumer spending is up, especially on big-ticket items like cars and electronics, and rural incomes are holding strong despite global uncertainty.”
The benefit of falling interest rates would continue to be felt as households refix their mortgages, which would likely support consumer spending, he said,
He believed the rural sector would retain strong incomes even as milk prices eased from highs, Fonterra shareholders had the added bonus of a $3.2 billion capital return, and beef producers were currently exempt from United States tariffs.
The growth outlook for country’s main trading partners was still below average, he said, which had been caused by the US tariffs, but New Zealand has been diversifying markets, while tourism had shown only slight growth.
“Continued tourism recovery will be linked to improvements in global growth and confidence, which will both take time to come through.”
Tuffley expected the slack in the economy would keep pressure on prices, which would see the annual rate fall from the current 3% level, at the top of the Reserve Bank’s target zone, towards the 2% midpoint around the middle of next year.
Unemployment, currently at 5.3%, was forecast to take longer to recover, not falling below 5% until 2027.
“The jobs market is also stabilising after a period of overall job losses … Job ads are on the way up, and 2026 should bring strengthening employment prospects.”
A modest lift in the housing market from lower borrowing costs, plenty of listings and still relatively flat prices.
“Mortgage rates are about as low as they are likely to go. People who have been waiting for interest rates to reach the lows before acting have nothing further to wait for.”
Prices are expected to rise 3 to 4%.
Tuffley doubted there would be any more rate cuts by the Reserve Bank of New Zealand unless the recovery stalled.
“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.”
ASB forecast the official cash rate to be held at 2.25% through next before a couple of rises in early 2027.
