After a challenging year, Kiwibank economists say the stage is set for a robust recovery in 2026, with stimulatory interest rate settings, easing global risks, and growing confidence across households and businesses.
Sabrina Delgado, Kiwibank’s Economist, says if there are no adverse shocks, the Kiwi economy is set for above-trend growth: “2025 was a frustrating year, but we're seeing markings of a recovery, not just in a few areas, but across the board. It is important to stress that interest rates today are significantly lower than they were this time last year. That matters. And it's having an impact. Household budgets are starting to feel the ease and we’re seeing growing confidence. The recovery won’t be overnight, but the settings are now right, priming the Kiwi economy to expand around 2.4% next year.”
2025 was a frustrating year, but we're seeing markings of a recovery, not just in a few areas, but across the board."Sabrina Delgado, Kiwibank Economist
Interest rates lead the recovery
With the Official Cash Rate now at 2.25%, mortgage rates have fallen into the 4% range, providing relief for households and encouraging business investment.
“Lower rates are breathing life into households and businesses. We see this in our card data, now showing a spreading of consumption into more fun, discretionary spending — signalling the ease is finally being felt by household budgets.
“Nothing is ever simple, however. There’s a new gust of headwind facing the Kiwi economy. It’s the premature rise of retail rates. Higher rates mean the economy is on the mend and growth is returning. But we’re not there yet. The signs of life have only just sprung and they need nurturing, not squashing.
Recovery gathering pace
Interest-sensitive sectors like housing and retail are starting to response, showing early signs of recovery.
Delgado says this is down to interest rates finally reaching a supportive level, something they’ve been strongly advocating: “Retail volumes in the September quarter, for example, posted their largest increase since late 2021 — and that’s even before the spending lift usually induced by Black Friday sales and Christmas shopping. Meanwhile, building activity, particularly in the residential sector, appears to have found its floor. Consents are showing upward momentum, likely in anticipation of a housing market recovery.
“We’ve been waiting for the housing market to stir, and the signs are finally here. Activity is growing with sales up 6% compared to last year. For now, weak population growth and elevated stock are capping price growth. But the fall in interest rates is one strong tailwind for the housing market. And a lift in investor appetite should help turn the dial. We’re expecting a modest recovery in house prices, with growth of about 2–3% next year.
We’ve been waiting for the housing market to stir, and the signs are finally here. Activity is growing with sales up 6% compared to last year."Sabrina Delgado, Kiwibank Economist
“The labour market, while strained, is stabilising — unemployment peaked at 5.3% and is expected to ease below 5% by the end of 2026. Hours worked are also rising, signalling renewed demand for labour. Confidence is turning into action — and that’s exactly what the economy needs,” says Delgado.
“We’re not worried about inflation. Recessions kill inflation. And that weed has had a proper dose of economic herbicide. We continue to expect inflation to return towards the RBNZ’s 2% midpoint next year.”
The bigger picture
Global risks have moderated, but uncertainty remains. Trade tensions have eased, and inflation pressures across major economies continue to soften. Tourism activity is recovering, with visitor numbers now around 90% of pre-Covid levels. Export sectors such as agriculture and tourism remain resilient, although softer commodity prices may temper growth.
“It’s hard to be outright optimistic as offshore risks persist, but the threats appear to be receding. Inflation concerns have eased, and we’re encouraged by signs of stability globally,” says Delgado.
Looking ahead, Delgado remains optimistic that growth will strengthen through 2026 and carry into 2027: “While challenges remain, the outlook is significantly brighter than it was six months ago, with the right settings now in place to support recovery.”
For more information, read the Kiwibank Economists’ 2026 outlook note.
Media contact: Eleanor Ashdown, External Communications Manager eleanor.ashdown@kiwibank.co.nz