Kiwibank has pushed its economic recovery forecast from 2026 to 2027, according to chief economist Jarrod Kerr, who attributed the delay to the Middle East conflict.
Kerr urged the Reserve Bank to hold interest rates steady to support the recovery, saying the conflict had caused a surge in fuel prices and weakened economic demand and activity. "We expected clearer skies this year, but instead we've had to navigate a storm. The important thing is we're still moving forward. The recovery hasn't disappeared, it's just slower than we'd hoped," Kerr said.
Kiwibank expects inflation to reach a high of 4.2% this quarter before falling back to around 2% in 2027, the midpoint of the Reserve Bank's 1-3% target band. Kerr characterised the spike as temporary. "I don't mind if the economy runs a little faster into next year, I don't worry about the inflationary risks because what we're seeing is that this is a very temporary shock," he said.
The bank outlined two alternative scenarios: a 20% chance of a deeper global slowdown pushing New Zealand back into recession, and a 25% chance of a swift domestic rebound if oil prices normalise quickly. In the upside scenario, growth could reach 3% next year with Reserve Bank support.
Kerr said the coming election would likely restrain investment and activity, but pointed to housing market improvement, a low currency helping exports and tourism, and low interest rates supporting households as factors in the recovery. The economy had been building momentum before the conflict broke out, though it was already facing a weak jobs market.