Tug\u2011of\u2011War economic recovery<\/p>\n
Smith said households continue to feel the pinch of elevated living costs and a softer labour market, while, on the other hand, the Official Cash Rate (OCR) was providing important support as mortgage holders pay down more debt.<\/p>\n
\u201cAround 40-50% of fixed loans are set to reprice over the coming months, and we expect this will continue to lower the average mortgage rate from around 5% today to roughly 4.7% by the end of 2026,\u201d Smith said.<\/p>\n
\u201cAs households gain a little more breathing room, the improving domestic backdrop is likely to support consumer spending, business confidence and hiring.<\/p>\n
\u201cThe New Zealand economic recovery isn\u2019t firing on all cylinders yet, but it\u2019s becoming more durable.\u201d<\/p>\n
Interest rate outlook<\/p>\n
Smith said while further OCR cuts were unlikely in 2026, they couldn\u2019t be ruled out if offshore or domestic conditions weaken.<\/p>\n
The 200 basis points (bps) of cuts in 2025 \u2013 taking the OCR to 2.25% \u2013 was helping to support economic activity, he said. <\/p>\n
\u201cWe currently expect 50 basis points of tightening from early 2027, but it wouldn\u2019t take much to bring that forward or push it higher,\u201d he said.<\/p>\n
But there was little need for the Reserve Bank (RBNZ) to hurry in its tightening, Smith said.<\/p>\n
Reserve Bank of New Zealand Governor Anna Breman. Photo \/ Mark Mitchell<\/p>\n
New Zealand election<\/p>\n
Smith said a tightly contested election raises the risk of short\u2011term fiscal decisions at a time when long\u2011term discipline is needed. <\/p>\n
He said New Zealand\u2019s government debt has steadily increased over recent decades, and cross-party alignment on long\u2011term issues such as infrastructure, climate planning and retirement savings will be essential.<\/p>\n
\u201cThe temptation to loosen the purse strings is real in election years, but New Zealand needs a stable and strategic fiscal approach to support a sustainable recovery,\u201d Smith said.<\/p>\n
\u201cWe need to take more of a long-term view if New Zealand is to maximise its considerable potential.\u201d<\/p>\n
Powering AI<\/p>\n
Smith said artificial intelligence (AI) offered a significant opportunity for New Zealand.<\/p>\n
According to ASB research, AI adoption could add around $20 billion to real GDP by 2040, and wider benefits could flow from developing datacentre and digital infrastructure industries.<\/p>\n
\u201cWith our high share of renewable electricity, New Zealand is very well positioned to support AI-linked growth. But energy security remains a major challenge, and we need the right infrastructure to make the most of this opportunity,\u201d Smith said.<\/p>\n
\u201cAI won\u2019t transform the economy overnight, but the groundwork needs to be laid now.\u201d<\/p>\n
A new world order<\/p>\n
Global uncertainty will remain a defining feature of the year ahead, Smith said.<\/p>\n
While global growth held up better than expected last year, shifting US trade policies, political volatility and upcoming US mid\u2011terms will require exporters to stay agile, he said.<\/p>\n
\u201cNew Zealand exporters have shown strong resilience despite these disruptions. But the landscape is still evolving, and adaptability will be essential,\u201d Smith said.<\/p>\n","protected":false},"excerpt":{"rendered":"Tug\u2011of\u2011War economic recovery Smith said households continue to feel the pinch of elevated living costs and a softer…\n","protected":false},"author":2,"featured_media":422758,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[10968,22666,64,63,99,15855,164,41261,1899,4717,20034,157593,3127,222403,4846,222402,4987,319,7137,1547,22671],"class_list":["post-422757","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-10968","tag-ahead","tag-au","tag-australia","tag-business","tag-economists","tag-economy","tag-five","tag-have","tag-in","tag-look","tag-moves","tag-new","tag-outlined","tag-recession","tag-shadows","tag-things","tag-to","tag-watch","tag-year","tag-zealands"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/422757","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=422757"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/422757\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/422758"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=422757"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=422757"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=422757"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}