Latest forecasts from economic consultancy Infometrics point to growth picking up pace next year to 2.2 percent from the current 1.7 percent despite the continuing effects of higher fuel prices, global uncertainty, and household caution.
“There is no doubt that cost-of-living pressures, particularly for transport, are still squeezing household budgets.
“Higher interest rates are also weighing on spending growth and the housing market.”
Kiernan said the “building blocks” of the recovery were already in place through solid agricultural exports, tourism, improving construction, more jobs being created, and steady migration flows.
“Infometrics sees enough in the data for economic growth to remain moderately positive in the near term, before a more fully-fledged pick up drives growth up to 3.2 percent in the second half of 2028.”
However, Kiernan said inflation would continue to be an issue with an expected spike in the final quarter of the year because of higher fuel prices.
The forecast was for the consumer price index to rise 4.2 percent by year end, prompting the Reserve Bank (RBNZ) to respond with two further rate rises this year to 3.25 percent and another two hikes in early 2027 to 3.75 percent.
He said businesses were constrained by how much inflation they could pass on to consumers, and noted the closeness of the election might also be a mood dampener.
However, he was confident recovery was not illusory.
“Economic activity is currently increasing, meaning growth is not the distant mirage that taunted us during the previous couple of years.
“It’s just a recovery that is a whole lot slower than we’d hoped for by now.
“We are cautiously optimistic that businesses can forget about nifty rhymes of promised growth and actually be buoyed by improving demand conditions throughout the next 18 months and beyond.”