That’s where the economists come in.
So brace yourself, here is a compilation of the big economic issues that are likely to trouble the headlines in 2026.
Inflation and the cost of living
Inflation, or the cost of living, remains a top concern for most economists.
It’s a frustrating thing to be worrying about in 2026 because the upside of a recession ought to be lower inflation.
Non-tradeable (domestic) inflation has been falling for the past couple of years – but it has been slower to abate than hoped.
Meanwhile, we’ve seen ongoing price pressure in categories like food, energy, rates and insurance that have kept topline inflation elevated.
Going into the new year, the official annual rate (based on the consumer price index) is at 3%, which is right up against the upper limit of the Reserve Bank’s target band.
It clearly remains a risk to recovery in the year ahead.
The key question for policymakers is whether the current elevated level of inflation is transitory, says Christina Leung from the NZ Institute of Economic Research.
Christina Leung is a principal economist with the New Zealand Institute of Economic Research. Photo / Mike Scott
“Persistently high inflation will mean interest rates will likely have to remain higher than currently anticipated.”
If inflation doesn’t fall, then the official cash interest rate may have to rise sooner than hoped. That could limit the scale of recovery.
“It’s unclear how much of an economic rebound we can enjoy before it becomes a problem,” says ANZ chief economist Sharon Zollner.
Kiwibank’s Jarrod Kerr sums up the hopes of many for low and stable interest rates in 2026:
“Just knowing that we’ve likely hit the lows, will get indebted households and businesses thinking about locking in the lows … and then investing,” he says.
“We’ve heard of decision makers wanting to see the lows before they act. Well, now they can act. Interest rates have risen in recent weeks. Traders have gone too far. But hopefully interest rates stabilise and entice investors.”
The extent of renewed inflation pressure may depend on how businesses are coping, says independent economist Cameron Bagrie.
“How much pent-up pressure is there to recover lost margins?”
In other words, even though the rate at which input costs are rising for many businesses is easing, margins have been squeezed badly in the past couple of years.
Many businesses have been treading water, trying to survive the downturn.
The extent to which they see the recovery as an opportunity to raise prices and recoup lost margins will have a big bearing on inflation.
Your back pocket
As well as undermining monetary policy goals, there is the more immediate cost-of-living issue, which affects consumer spending and general economic sentiment.
If consumers still feel like they are going backwards, it doesn’t really matter what the economists say.
Consumer sentiment will remain a headwind to recovery and a factor in the upcoming election.
Confidence is critical for the recovery to take hold, says Kiwibank’s Kerr.
“Business investment intentions and hiring intentions will need to stay in positive territory and turn into activity. We are optimistic, while firms are cautious.”
Will household real disposable incomes rise to sustain the recovery?
That’s what BNZ head of research Stephen Toplis is looking for.
Wages running ahead of inflation is what we need to see for New Zealanders to start feeling better off.
That may take longer than just getting the topline inflation figure back inside the Reserve Bank’s comfort zone.
Westpac chief economist Kelly Eckhold makes the political link.
Westpac chief economist Kelly Eckhold
“How will developments in the cost of living impact consumer spending and the election?” he asks.
“[Both] 2024 and 2025 were dominated by the ‘cost of living crisis’,” he says.
“Inflation has come down, but prices remain high and wages are stagnant. Will consumers sustainably start opening their wallets and drive an upturn in the economy?
“And will the cost of living play a meaningful role in determining the election outcome in 2026?”
Election year
With that issue top of mind, the evolving political landscape will be important to watch, Eckhold says.
“Current polling suggests that the General Election is likely to be tight and there will be stark differences in the policies that seem likely to be espoused by the centre-right and centre-left groupings – especially insofar as tax and housing-related policies are concerned.
“If polling remains tight as the election nears, this could cause some business decisions to be put on hold, especially if the economy has not already developed strong forward momentum.”
The BNZ’s Toplis and ASB chief economist Nick Tuffley also rate political uncertainty as a big issue for 2026.
“MMP elections are close, creating uncertainty over who wins,” warns Tuffley.
“Of late, government policy is becoming more partisan, meaning tax policies and property policies [as examples] are becoming binary risks, fuelling the risk of post-election divergence in policies and contributing to pre-election pauses in decision-making.”
The fiscal position is challenging given how high spending has risen as a share of GDP, he points out.
“Political parties will need to show credibility in how they are going to fund added spending or any reductions in tax rates – and above all demonstrate how their policies will lift NZ’s productivity to improve living standards.”
Bagrie breaks it down to one simple question:
“Will an improving economy be enough to rescue the incumbent Government or will sticky cost-of-living pressure continue the disgruntled population theme?”
A world of troubles
The next biggest concern for most economists was some combination of global politics and economics.
“We are the two-bit player at the international roulette table,” says Bagrie.
US tariffs have, by and large, been accepted by countries without any overt retaliation, Tuffley says.
“But the US is arguably less trustworthy as a trading partner, so a gradual seeking of alternative trade partners is likely.
“Parts of the world are learning that your enemy is now your long-standing ally’s new BFF, or that your ally could trade your country’s security for their economic gain.”
Westpac’s Eckhold suggests US midterms will have some bearing on the global outlook.
“Trump spent his first year making historic and chaotic changes to global security and trade relationships,” he says.
“Could we see a more consumer-friendly set of policies in the coming year [for example, more constrained tariffs, lower interest rates, more government spending] in an effort to stave off becoming a lame duck president after the midterm elections?
“Will the high uncertainty of 2025 give way to a calmer 2026 and a more supportive global backdrop for New Zealand?”
ASB’s Tuffley suggests keeping a keen eye on Wall Street, “watching for the risk of a financial big bang”.
“AI stocks and investment spending are getting a lot of focus. There is the risk of a pullback in value perceptions or in the enormous capex spending that has been happening,” he warns.
“In the US, most of the large spenders do have significant revenues from established business streams, so a meltdown is less likely to create the sort of damage seen during the dotcom bust.”
Japan’s bond market is another potential source of instability, he says.
“With the Bank of Japan tightening interest rates and ‘Sanaenomics’ proposing fiscal stimulus, Japanese bond yields are climbing to levels not seen for nearly two decades – which will start to create debt servicing pressures over time and could create other cracks [as rising US bond yields did for Silicon Valley Bank].”
Foreign investors are also piling into the Japanese bond market, which increases the risk of instability if there is a sudden shifting in positions, he says.
Eckhold also raises the issue of the AI revolution – but from a productivity point of view.
Could it actually deliver some positives in 2026?
“How businesses embrace AI will be something to watch,“ he says.
Could AI actually deliver some positives in 2026?
“Will it be mainly used to cut costs and reduce labour, or will it drive increased levels of activity and productivity together?
“And how will the AI infrastructure investment race play out?
“Will it lead to overinvestment as some commentators fear, leading to financial stress as current lofty valuations fail to be supported by customer revenue?”
Just for fun, I asked my AI chatbot for an answer to these questions. Here’s what it said:
“AI can deliver real gains in 2026, but they’re unlikely to be dramatic enough to justify the most extreme valuations. Expect a correction in the frothier corners, not necessarily a broad crash.”
I’m assuming that’s a reflection of the prevailing market view at the time of writing.
I hope it’s right.
New Zealand’s productivity engine
Productivity more broadly – and whether we can succeed in lifting our real underlying growth rate – will remain a key issue for 2026.
Regardless of the pace of the cyclical recovery, making inroads on that front is important to ensure progress.
In fact, if 2026 does offer a relatively benign economic environment – the first in several years – it will be all the more important to make the most of the opportunity and target structural change and investment.
“We have spent a decade adding workers without adding machines, software or infrastructure, what economists call ‘capital shallowing’,” says NZ Initiative chief executive Oliver Hartwich.
Dr Oliver Hartwich, executive director of The New Zealand Initiative. Photo / supplied
“If business investment stays flat relative to GDP in 2026 while employment grows, we are digging with a spoon when we need an excavator. Watch whether firms respond to lower rates by actually investing capital or just hiring more flexible labour.”
Bagrie describes an “unobservable variable – potential growth”.
Currently, the New Zealand economy’s capacity for growth is around 1.5%.
“Which is low,” he says.
In other words, currently, any growth above 1.5% will be too much for the economy to manage without creating inflation.
The hope is that GDP will rise as migration lifts and productivity improves, Bagrie says.
But if potential growth remains low, this upswing in demand we are seeing is going to flow into inflation quickly and the Reserve Bank will be forced to respond.
That pushes interest rates up, slowing growth.
So somehow we need to overcome this structural speed limit on the nation’s ability to grow.
“The big question is whether New Zealand is becoming more productive and attractive to capital, or just larger?” Hartwich says.
“I suspect 2026 will confirm we have [once again] been coasting on population growth rather than building genuine prosperity.”
The headline GDP numbers will look respectable in 2026, probably 2% plus, he says.
“But the real story is whether per-capita GDP finally turns positive after falling for two years.
“If aggregate GDP rises while per-capita income stays flat or negative, we will have a ‘hollow recovery’, i.e. the economy is getting bigger, but families are not getting richer.”
This is the difference between growth driven by adding workers and growth driven by productivity.
“My bet,” says Hartwich, “the gap persists longer than the consensus currently expects.”
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.