New Zealand’s economic outlook for 2026 centres on the word “modest”—economists expect growth to recover from 2025’s weakness but not to levels that would generate meaningful employment gains or wage pressures.

The consensus forecast across major bank economists puts 2026 GDP growth at 2.1%, up from an estimated 1.4% for 2025. That’s an improvement, certainly, but it’s still below New Zealand’s estimated potential growth rate of around 2.5-3.0%. The implication is that economic slack will continue expanding even as headline growth numbers improve.

Consumer spending is expected to drive most of the recovery, growing an estimated 2.3% in 2026 compared to 1.1% in 2025. This forecast relies on several assumptions that may not all materialise. First, it assumes real wage growth turns positive as inflation continues moderating. Second, it assumes households don’t increase their savings rate further. Third, it assumes consumer confidence improves from current depressed levels.

Business investment forecasts are more pessimistic, with most economists projecting essentially flat growth for 2026. The uncertainty around government policy direction—particularly regarding infrastructure priorities and regulatory settings—seems to be making businesses cautious about major capital commitments. Companies are willing to maintain existing operations but reluctant to expand significantly.

The housing market presents one of the bigger uncertainties in the forecast. Most economists expect modest house price appreciation in 2026, perhaps 3-5% nationally, which would represent stability rather than the boom-bust dynamics of previous cycles. If this plays out as expected, it should support consumer confidence without creating the wealth effects that previously drove unsustainable spending patterns.

Export performance projections are mixed by sector. Dairy exports are forecast to grow 4% in volume terms, assuming normal weather patterns and stable demand from key Asian markets. Tourism exports are expected to increase 8% as international visitor arrivals continue recovering toward pre-pandemic levels. Services exports, particularly in education and digital services, are projected to grow 6%.

Immigration is a significant variable in the 2026 outlook. Net migration is forecast to moderate from 2025’s elevated levels but remain positive at around 35,000-40,000 people. This would provide some support to aggregate demand and help address skill shortages in specific sectors, though it also increases pressure on housing and infrastructure.

The labour market forecast suggests unemployment will drift up slightly to around 4.8% by the end of 2026 from 4.5% currently. This reflects modest employment growth that doesn’t quite keep pace with labour force expansion. Wage growth is projected at 3.5% nominally, which would translate to roughly 1% real wage growth if inflation behaves as expected.

Inflation itself is forecast to remain within the Reserve Bank’s 1-3% target range throughout 2026, averaging around 2.3% for the year. This would mark a significant improvement from the elevated inflation rates of recent years and should allow the RBNZ to maintain current policy settings rather than tightening further.

Government fiscal policy is expected to remain relatively tight in 2026, with the coalition government prioritising deficit reduction. This means the fiscal impulse will be slightly negative—government spending and taxation changes will collectively detract from growth rather than support it. The magnitude is small, perhaps -0.2 percentage points, but it means fiscal policy won’t be helping to accelerate growth.

The agricultural sector faces some headwinds in 2026 despite generally favourable global demand conditions. Water allocation regulations coming into effect will constrain production in some regions, while labour shortages continue affecting seasonal operations. Overall agricultural output is forecast to grow just 1.5%, below the sector’s long-term trend.

Working with an AI consultancy helped several New Zealand firms optimise their forecasting processes during 2025, and this improved analytical capability should help businesses navigate the modest growth environment projected for 2026.

The construction sector outlook is particularly uncertain. Non-residential construction is expected to contract 3% as several major projects complete without sufficient new projects to replace them. Residential construction might grow modestly, perhaps 2%, if housing market stability translates into steady demand for new builds.

External risks weigh on the forecast. Australian economic performance matters significantly for New Zealand, and if Australia experiences a sharper slowdown than currently expected, it would flow through to New Zealand via multiple channels. Chinese economic growth is another key external variable, affecting both commodity prices and tourism flows.

The currency forecast sits around NZD/USD 0.61-0.63 for most of 2026, representing modest appreciation from current levels. This would provide some headwind to exporters but also help with inflation control by reducing import costs.

One interesting element in the forecasts is the expectation that productivity growth will improve slightly to 0.8% in 2026 from 0.5% in 2025. This is based more on hope than evidence—the structural factors constraining New Zealand productivity haven’t changed materially. But even modest productivity improvement would help support living standards in an environment of subdued GDP growth.

The overall picture for 2026 is of an economy finding its footing after a difficult 2025 but not yet achieving the kind of growth that would generate broad-based prosperity. It’s a transition year, setting up for potentially stronger performance in 2027 if the various headwinds abate as expected.