NZ Economy 2026: Is the Worst Finally Over Ft. Brad Olsen

The NZ economy in 2026 started the year in a better position, with economic trends beginning to pick up after several difficult years.

Then came the Iran war.

The resulting disruption delayed the recovery, with higher fuel prices adding another challenge for households and businesses. But Brad says the economy has proven more resilient than expected.

Consumer and business confidence held up better than anticipated, while concrete volumes and other indicators showed that activity had not simply stopped.

Core consumer spending excluding fuel actually rose in the June quarter. Forestry removals increased despite fuel accounting for a significant part of the sector’s cost base, while concrete volumes and building consents also increased.

Manufacturing data provided another positive signal, with the Performance of Manufacturing Index showing strong figures in June.

These signs do not mean the economy has suddenly returned to strong growth. Instead, they suggest the recovery is still happening, just more slowly than many had hoped.

For households and businesses, there also appears to have been a shift in mindset. Rather than continually waiting for perfect conditions, people are increasingly accepting that another shock or unexpected event could always be around the corner.

That means building more flexibility into decisions and finding ways to keep moving even when conditions are not ideal.

If some of the numbers are improving, why does the NZ economy in 2026 still feel so difficult for many households?

Brad believes we may be closer to feeling an improvement than people think.

Inflationary pressures are less intense than when headline inflation was above 7%. Food price inflation had also become considerably more stable, while current interest rates are not necessarily abnormal when viewed over a longer period.

The problem is that prices are still higher than they were a few years ago, while wage growth has become more limited.

During the previous inflation shock, higher prices were accompanied by stronger pay rises. Now households are dealing with prices that remain elevated without the same wage growth helping them keep pace.

Then there is the labour market.

Unemployment has reached an 11-year high of 5.6%, and there are around three times as many people applying for every available job as there were in 2019.

Interestingly, that does not simply mean large numbers of people have lost their jobs.

Employment actually increased by 0.5% during the quarter. Part of the rise in unemployment came from people who had previously not been looking for work entering the labour market, potentially because rising costs meant they now needed additional income.

For Brad, two things are likely to be particularly important before households start to feel significantly better: unemployment needs to fall and wage growth needs to strengthen.

Normally, a weaker economy and softer labour market would be expected to take some pressure off inflation.

That has not entirely happened.

Economic activity and spending remain below where we would ideally like them to be, unemployment is high, yet inflation excluding fuel was still sitting at 2.9%.

That creates a difficult balancing act for the Reserve Bank.

Move too aggressively on interest rates and it risks restricting a recovery that is only just beginning to emerge. Wait too long, however, and inflation could accelerate again once spending and economic activity strengthen.

Brad’s concern is that New Zealand may have less capacity to grow before creating inflationary pressure than it did previously.

That means the economy could reach its effective “speed limit” sooner, making it difficult to achieve stronger growth without generating another round of inflation.

Brad broadly agreed with the Reserve Bank’s recent 25-basis-point OCR increase.

His view is that the economy needs to move towards a more neutral interest rate rather than continually swinging between heavy stimulus and sharp increases.

During Covid, interest rates were cut to stimulate the economy. When economic conditions improved, rates remained low for too long and inflation eventually became a much larger problem.

The response then required substantial interest rate increases.

When economic activity weakened, rates were cut again to stimulate growth.

Brad argues that repeating that cycle risks amplifying economic volatility. Instead of continually moving from one extreme to another, the aim should be a more stable environment.

A “boring” economy may ultimately be a healthier economy.

Around 3% is broadly viewed as a neutral level for the OCR. Brad said Infometrics’ forecast has the OCR reaching 3% by the end of the year, with potentially another 50 basis points of increases at some point during 2027.

Once the OCR reaches 3%, there may be an opportunity to pause and assess how much further action is actually required.

Despite higher interest rates, Brad still expects economic growth to recover.

The forecast discussed in the episode has GDP growth recovering to 2.7%, with the more important figure being average growth of around 2.3% through to 2031.

The challenge is that the path towards that growth is unlikely to be smooth.

Weather events, geopolitical uncertainty and other shocks could continue to disrupt the economy. Brad also pointed to New Zealand’s limited capacity to grow without creating inflation and the country potentially being behind the curve when it comes to technology investment and incorporating AI into businesses.

There may not be one sector that suddenly drives the next major growth cycle either.

Tourism is performing well. Agriculture is performing well. Construction reached significant highs before falling back.

Different parts of the economy will move through their own cycles rather than all performing strongly at the same time.

That makes a perfectly linear recovery unlikely.

One of the most significant differences in this economic cycle is the role of property.

Brad says this is the first time in roughly a generation that New Zealand’s economic growth has not been built directly off the back of housing growth.

That does not mean there are no opportunities in property. It means the risk has shifted.

In 2021, rapidly rising prices meant almost every property appeared to perform well. Today, investors need to be far more selective.

Brad sees that return of nuance as a positive development for the economy over the longer term.

Capital is also facing more competition.

Rather than property being the obvious destination for money, people are increasingly weighing up whether to invest overseas, invest within New Zealand, start a business, buy property or spread their capital across different options.

Brad believes New Zealand is in a more sustainable long-term position than it was a few years ago, with more affordable housing providing people with greater choice about where their money goes.

Brad expects property price growth to be slower over the long term than it has been previously.

The market is also likely to become more discerning.

Demand has shifted towards townhouses and other medium-density options, while working from home has changed what some buyers need from a property. An additional room or dedicated office space can now influence what people are looking for.

That means the old cookie-cutter approach is unlikely to work in the same way moving forward.

Different properties could perform very differently depending on what buyers actually want, reinforcing the need for greater nuance when assessing opportunities.

With an election approaching, households and businesses could be forgiven for wondering whether they should wait to see what happens before making major decisions.

Brad’s view is that elections generally have less direct influence on the economy than the amount of discussion around them might suggest.

There can be exceptions. Wellington’s housing market, for example, can respond differently depending on what is happening within the public sector.

But more broadly, the economic effect of governments can be less direct than political messaging sometimes implies.

The bigger challenge can be uncertainty.

Businesses may understand the policies being proposed during an election campaign, but they do not necessarily know which policies will survive coalition negotiations or eventually become law.

That can create caution.

Brad’s earlier point, however, remains relevant: continually putting decisions on hold until every source of uncertainty disappears is increasingly difficult when new disruptions continue to emerge.

For Brad, the turning point is likely to come through the labour market.

He believes New Zealand is already in a better position and that some economic indicators have begun to improve.

But households are unlikely to feel genuinely confident until they see greater opportunity around employment.

Job advertisements are one of the indicators Brad watches every month. At the time of the discussion, they remained relatively flat and were 26% below pre-pandemic levels.

If job ads begin to trend higher, that would indicate businesses are becoming more confident and looking to hire.

For households, that can create a much more tangible sense that conditions are improving.

Lower unemployment, more job opportunities and stronger wage growth may ultimately be what turns an economic recovery on paper into one people can actually feel.

• The NZ economy in 2026 is showing signs of recovery, but progress has been slower and less linear than many hoped.
• Core consumer spending, forestry activity, concrete volumes, building consents and manufacturing data have provided some encouraging signals.
• Brad believes households and businesses have become more resilient and are increasingly getting on with decisions rather than waiting for perfect conditions.
• Unemployment is at an 11-year high of 5.6%, but employment still increased by 0.5% during the quarter.
• Around three times as many people are applying for each available job compared with 2019.
• Falling unemployment and stronger wage growth could be the two key changes needed before households start to feel significantly better.
• Inflation remains a challenge even while economic activity and the labour market remain relatively weak.
• Brad broadly supported the Reserve Bank’s 25-basis-point OCR increase and sees 3% as an important point at which to reassess the path forward.
• Infometrics expects GDP growth to recover to 2.7%, with average growth of around 2.3% through to 2031.
• This recovery is unusual because it is not being built directly on housing growth in the way previous New Zealand economic cycles have been.
• Brad expects slower long-term property growth and believes investors will need to be more discerning about the properties they choose.
• Job advertisements could provide an important signal that confidence is genuinely returning, with stronger hiring potentially helping Kiwis finally feel like the economy has turned the corner.

If changing interest rates, property conditions or the wider economy have you reassessing your financial position, speak with the Lighthouse Mortgage team about your next steps.