Photo: RNZ
Falling interest rates are expected to be shortlived with rates forecast to rise from the end of 2026.
Infometrics chief forecaster Gareth Kiernan said annual economic growth was forecast to accelerate to 2.3 percent by early 2027, with annual per capita growth comfortably above the 1.4 percent average recorded during the 2010s.
The outlook compared with the most recent Stats NZ data which showed GDP contracted by 0.9 percent in the second quarter ended in June, or by 1.1 percent on the year earlier.
Kiernan said the official cash rate was likely to rise to 3 percent over the first half of 2027, though could edge up to 4 percent, given a number of risks.
"A new round of monetary policy tightening is likely to be needed from late 2026 to get interest rates back to neutral," he said.
Infometrics chief forecaster Gareth Kiernan. Photo: RNZ / Rebekah Parsons-King
"We expect households to respond with stronger spending growth in the near term, and we also see faster growth in business investment and residential construction in 2027."
Kiernan said the growth forecast was supported by increased government spending on infrastructure ahead of next year's election.
He said the stimulus should see economic growth accelerate, which meant the Reserve Bank would need to move back towards a tightening cycle.
However, the more immediate outlook was for further rate cuts this year.
Interest rates to fall further in 2025
"We expect the Reserve Bank to cut interest rates again next month, taking the official cash rate down to 2.25 percent (from 2.5 percent) and holding it at that level through most of 2026.
"We think potentially, that turns out to be a little bit unnecessary, given the sort of effective previous interest rate cuts and the strength of export prices flowing through into provincial economies, which should lead to faster growth next year."
Still, Kiernan said the economy does need some stimulus.
"I think everyone's been hanging out for better economic conditions through the last two or three years, when things have been tough.
"And so from a business point of view, you will be wanting to make the most of those improved demand conditions through 2026."
He said consumers should consider fixing mortgage rates, while interest rates remain low.
"And I think there's further cuts to come in coming weeks as well."
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