New Zealand Institute of Economic Research (Inc)
Media release, 26 August 2025
For immediate release
NZIER Quarterly Predictions, September 2025
The continued divergence between firms’ optimism about an improvement in the general outlook and current weak trading conditions remains a key theme of the New Zealand economy. Despite a continued improvement in business confidence since the Reserve Bank of New Zealand (RBNZ) commenced its monetary policy easing in August last year, lower interest rates have been slow to support a recovery in demand. The disappointing recovery reflects heightened uncertainty weighing on households and firms’ appetite to spend and invest.
Further relief for households ahead
Despite relief from lower mortgage rates for many borrowers, the soft labour market continues to drive caution amongst households, with the recovery in household spending remaining patchy. With around half of mortgages due for repricing within the coming six months, we expect further financial relief for households in the form of further reductions in mortgage repayments. This should support a continued recovery in retail spending over the coming year.
Continued uncertainty over the global growth outlook is hampering recovery
The global backdrop remains volatile. The United States announced in late July that it would impose a 15 percent tariff on imports from New Zealand, and it continues to negotiate tariff and trade deals with other countries. Increased US tariffs on imports from New Zealand could potentially reduce demand for New Zealand’s key exports to the US, such as meat and dairy products. Beyond this first-round impact, the evolving US tariff policies heighten uncertainty over the global growth outlook, which could dampen global demand. This presents a downside risk to New Zealand’s economic recovery.
Higher food prices to drive a short-term spike in annual CPI inflation
The RBNZ delivered a 25 basis-point cut to the OCR at the August Monetary Policy Statement, bringing it to 3 percent. While the markets widely expected this cut, the surprise was in the downward revision to the RBNZ’s OCR projection, which indicates two further OCR cuts are likely by the end of this year.
We expect annual CPI inflation to rise slightly above the top of the RBNZ’s inflation target band over the coming year, largely driven by higher food prices. Beyond 2025, we expect continued spare capacity in the New Zealand economy from the slow recovery, which will reduce inflation pressures. Given the RBNZ’s clear indication of further monetary policy easing, we now forecast further OCR cuts at the upcoming meetings in October and November to bring the OCR to a trough of 2.5 percent.
Quarterly Predictions is an independent review of New Zealand’s economic outlook and includes comprehensive forecasts of the economy. The full publication is available exclusively to NZIER’s members.
For further information, please contact:
Christina Leung, Deputy Chief Executive (Auckland) & Head of Membership Services
christina.leung@nzier.org.nz , 021 992 985
