The Kiwi dollar was more sensitive than peers to shifts in global risk appetite, BMI said.
“Key headwinds include persistent geopolitical uncertainty, a subdued domestic growth outlook, and, to a lesser extent, a more accommodative RBNZ.”
While annual Consumers Price Index inflation rose to the top of the 1-3% target band in the third quarter, core and non-tradeables inflation continued to moderate, BMI said.
That was consistent with inflation returning to 2% by mid-2026.
“Economic activity was weak through to mid-2025, with GDP contracting in [the second quarter], although near-term indicators point to a gradual recovery,” BMI said.
In a separate research note on New Zealand (also released today), BMI forecast modest real GDP growth of 0.5% in 2025 and a stronger 2.0% in 2026.
Both forecasts were revised down from 1.2% and 2.7% respectively in September.
“We maintain our view that New Zealand’s real GDP growth will experience a modest acceleration in 2025. However, we now hold a less bullish view than in September, when our last economic review was released,” BMI said.
This revision reflected the fact that BMI’s previous call was made before the release of New Zealand’s weaker-than-expected second quarter GDP release, when the economy contracted by 0.9% (quarter on quarter).
The revision to the 2026 growth forecast from 2.7% to 2%, reflected the fact that the economy was responding to monetary easing more slowly than anticipated.
In 2026, BMI expects growth to pick up as further monetary easing, resilient exports and sectoral recovery support activity.
“The Reserve Bank of New Zealand’s rate cuts would continue to ease monetary policy conditions – even if most of the easing cycle was likely behind us,” BMI said.
That would support household spending and business investment.
“However, downside risks persist. An escalation in global trade tensions or new tariffs could weaken export performance, while a slower-than-expected recovery in mainland China – New Zealand’s largest trading partner – would dampen agricultural demand.
“Domestically, persistent labour shortages and wage pressures could restrain productivity, and delays to infrastructure projects would reduce fiscal support,” BMI said.
“Additionally, if inflation proves sticky, the Reserve Bank may pause or reverse rate cuts, curbing the anticipated lift to consumption and investment.”
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
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