Economic Update – 29 January 2026
The New Zealand economy is showing signs of cyclical recovery, with business confidence rising and the labour market stabilising. January data supports the view that demand is returning, particularly in manufacturing and services. However, challenges remain, including weak house prices and low net migration.
Inflation ticked up to 3.1% in the December quarter, driven by higher tradable prices like petrol and airfares. While households still face cost pressures, food and rent inflation eased. Inflation is expected to fall back within the Reserve Bank's target range by 2026, with markets anticipating a potential OCR hike as early as September.
Global growth remains steady, with the IMF forecasting 3.3% growth in 2026. Geopolitical risks and fiscal deficits are concerns, but investment in AI and strong financial conditions help offset these.
Business sentiment is improving, with the QSBO for December showing a significant rise in confidence, though the construction sector remains soft. The labour market shows modest job growth, particularly in services, while retail spending and residential investment are on the rise.
In summary, New Zealand’s economy is gaining momentum, but inflation pressures and migration challenges remain.
© The Treasury - New Zealand