We’re nearing the end of the year. And we’re sprinting to the year. It’s a busy week ahead, book bookended by Treasury’s Half Year Economic and Fiscal Update (HYEFU) on Tuesday and the Q3 Kiwi economic report card (GDP figures) on Thursday. And that’s just local events. Offshore, the data calendar is booked and busy with central bank announcements (ECB, BoE and BoJ) and much-anticipated, but highly volatile US jobs and inflation data (see calendar for more detail). Here at home, HYEFU is up first. The Govt will open its books for all to see, and the question to be answered is will the return to a surplus be delayed yet again?

At the end of the 2025 fiscal year, the Govt’s public finances were in a healthier state than expected. Core Crown tax revenue came in around $800mil more than forecast, while core Crown spending was $525mil less than forecast. Altogether the operating deficit (OBEGALx) was almost $900mil smaller than forecast. A better operating position also left the Govt with a stronger cash position. Although that’s more down to a delay in expected payments, some of which may now take place in the current fiscal year. Nonetheless, the net core Crown debt ended the year at 41.8% of GDP, 0.9%pts below the Budget estimate. The 2026 fiscal year, however, is running slightly behind forecast. For the first four months to October, tax revenue has come in weaker than forecast while spending has been more than forecast. The operating deficit now stands at $4.9bn, around $700mil larger than expected. The forecast horizon will be extended to 2029/30, but we’d expect 2028/29 to still show the return to surplus. The track getting there however may be lowered given the underperformance of tax revenues.

For markets, the focus will be on the bond issuance and fiscal impulse. Consensus is that there the issuance should be largely unchanged to what was presented at the Budget, which is $38bn for the 2026 financial year. And Treasury’s fiscal impulse analysis should still conclude fiscal settings as contractionary. That’s a point in favour of keeping the cash rate stimulatory as an offset. Indeed, it’s monetary policy that is currently doing the heavy lifting in strengthening demand and growing the economy.

On Thursday we will see how the Kiwi economy performed over the September quarter. Crunching the numbers, we expect activity lifted 0.9% over the quarter. That would follow June’s 0.9% contraction, and the 0.9% lift back in March. Yes, it does sound like a bit of a roller coaster doesn’t it. The topsy-turvy nature of these quarterly headline numbers reflect ongoing challenges StatsNZ faces with the seasonal balancing item following Covid’s disruption to seasonal patterns. So, take the headline with a grain of salt. And as always brace for revisions. The GDP data is notorious for them. Especially in the September quarter releases which coincide with StatsNZ’s annual benchmarking process and often amplifies revisions. We expect some of June’s near 1% contraction to be revised lower, and if that happens, we could see Thursday’s headline figure look a little weaker than expected too.

Nevertheless, the story beneath the surface points to a quarter of broad-based strength. Most industries should post gains. Professional services are likely to rebound strongly, supported by the rise in hours worked over the quarter. In fact, that’s a tailwind for the wider services sector. Additionally, indicator data over Q3 also point to some meaningful lifts across retail, manufacturing, and construction. Our last two weeklies had covered the lifts in retail sales (up nearly 2%) and building volumes (up 1.5%) over the quarter. Meanwhile PMIs (the activity index for manufacturing) held at expansionary levels throughout Q3.

It all points to a strong quarter of growth. And the outlook from here is looking even brighter. High frequency data for the month of November reflects activity is gathering momentum into the final stretch of the year.

2026 should be an even better year. Our crystal ball told us so. And we’ve updated our forecasts. We continue to forecast a robust recovery for the Kiwi economy. We’re growing in confidence as interest rates have been (belatedly) set at stimulatory levels. And we’re hearing more from investors, after a few years of conspicuous absence. Household budgets are improving, despite the heavy burden of higher prices on essentials. Our card data shows a spreading of consumption into more fun, discretionary spending. That’s a good sign. And business owners are starting to see a lift in activity. It’s not just confidence, it’s action. Check out our 2026 outlook for more on the outlook for 2026.

This brings us to our final weekly update for 2025!

As always, we want to thank all our clients and readers. Each year feels busier and more action-packed than the last. And that’s largely because we’ve had more opportunities to connect with you across multiple channels. We love it, and we truly appreciate the feedback and comments you’ve shared. Your insights have been invaluable, and your anecdotes continue to shape our view.

We know 2025 was a year of frustration for many. But the settings are about right, now. We have the makings of a recovery, and not just in a few areas, most will recover.

We hope to be truly fixed in 2026

Until then, we’re taking a little break. This is our last ‘weekly’ until 19th Jan.

Merry Christmas and Happy New Year!

Financial Markets

The comments below were provided by Kiwibank traders. Trader comments may not reflect the view of the research team.

In rates, the surge in Kiwi yields continue

“Kiwi yields surged again following the RBNZ decision, extending gains through the week. The initial move came from unwinds of stale received positions in the 5-year sector, later reinforced by mortgage-related paying. Together, these flows lifted the entire curve and added to the steepening trend. All ships rise with the tide, yields have climbed enough to price in roughly +60bp of hikes by end-2026, with +22bp now priced for July. Given the sizeable output gap, it would take an exceptional surge in Q1 growth to justify a hike as early as Q2. RBNZ’s Brenman reiterating last week that she remains laser-focused on inflation, which is unlikely to originate from domestic sources anytime soon.

This week’s indicators suggest a strong rebound in 3Q GDP, with most forecasts clustered around +0.9%. This marks a sharp turnaround from the -0.9% contraction in Q2 that drove a significant drop in yields and a 50bp rate cut. However, the recovery path appears longer and more uneven than current market pricing implies. Markets are front-loading tightening expectations, pushing mortgage rates higher. Mortgage hedging will remain a key driver into Christmas as settlements are brought forward and borrowers rolling off look to fix for slightly longer terms. The balance between mortgage flow and counterparties willing to take the other side will depend on yield levels and which flow dominates on any given day. Using the 2-year as a benchmark, yields initially met resistance at 2.90% following the RBNZ’s November MPS, surged to around 3.10% last week, and appear to have stabilized near that level toward the end of the week.

The HYEFU will be closely watched for any signs of increased issuance, though none is expected, while global trends continue to lean toward more, not less, supply.” Ross Weston, Head of Balance Sheet Management – Treasury.

In currencies, The Kiwi navigates a week of risk events. But more loom ahead

“It was a week packed with central bank decisions from both the RBA and the US Federal Reserve, yet the Kiwi dollar largely traded in one direction - higher. The rapid sell-off in the domestic interest rate curve following November’s RBNZ MPS began to cool as receivers re-entered the market, slowing the Kiwi’s ascent. The currency held within a 0.5759–0.5831 range before closing the week comfortably above 58 cents despite some late Friday nerves in US markets. While the move into the 58-cent region feels a touch stretched - both from a momentum perspective and amid the risk of a recalibration in short-term NZ interest rate expectations - 0.5850 stands out as a formidable resistance zone. This level aligns with both the 200-day moving average at 0.5861 and the 50% retracement of the July high (0.6120) to November low (0.5583), sitting neatly around 0.5852.

Across the Pacific, the FOMC delivered a masterclass in central bank communication - providing reassurance without spooking the rates market. The Fed cut the funds rate by 25bp and introduced “reserve management” bond purchases to stabilize short-end rates. At the same time, it signalled a longer-term return to a neutral cash rate of 3%. Why call this a masterclass? Because amid growing concerns of an AI-driven equity and private credit bubble, the Fed struck a delicate balance: short-term flexibility with long-term clarity. The message was clear—the ship is on a long and steady heading towards its north star, but the Fed retains the firepower to address any turbulence ahead. Markets barely flinched. RBNZ, take note.

Looking forward, the week’s calendar is far from quiet. NZ GDP, a US data catch-up (including November Non-Farm Payrolls, October Retail Sales, and PCE/CPI later in the week), and then the BOJ, ECB, and BOE policy updates on Friday will all keep investors on their toes. With such a mix of signals, navigating currency risk into year-end will require discipline - no excuses for an early Christmas departure…

And if you’re curious about our outlook for the Kiwi into early 2026 and beyond, watch for the final FX Tactical drop of 2025 landing in your inbox this week.” Hamish Wilkinson – Senior Dealer, Financial Markets.

Weekly Calendar

Both here and abroad, the calendar is booked and busy with key data releases, central bank announcements and central bank speeches

• Locally, the data calendar is full on, bookended by the Half Year Economic and Fiscal Update (HYEFU) on Tuesday and Q3 GDP on Thursday. In amongst that a slew of high frequency data are also due out.

- Half Year Economic and Fiscal Update: The key fiscal indicators have been bit mixed for the start of the 2026 financial year. The tax take has come in weaker, while expense a little stronger than forecast. The operating deficit is around $0.7bn wider than forecast. Another year will be added to the forecast horizon. The 2029 financial year is still expected to see the return of the Govt's books to surplus, but the track getting there may be lowered. Consensus also expects no material change to the bond issuance programme as presented at the Budget.

- Nov REINZ house prices: sales activity is picking up, but price growth remains capped by ample listings

- Nov Selected Price Index: growing evidence that inflationary pressures are easing. Focus will be on the more volatile items, including travel.

- Q3 GDP: Economic output is expected to have expanded 0.9% over the September quarter, with almost all industries recording growth. Preliminary data has shown strong growth in retail spending, a decent lift in construction activity and a rebound in manufacturing. Historical data are likely to be revised. Focus will be on any revision to the 0.9% contraction over the June quarter. Looking ahead, it appears that the momentum in Q3 is carrying on into the final quarter of 2025.

• Three central banks will announce their final decision for 2025 this week:

- European Central Bank: Governing Council appear finished with the easing cycle. The focus is on the updated forecasts.

- Bank of England: A cut is practically fully priced in. The focus will be on tone and forward guidance of a highly divergent BoE

- Bank of Japan: Going against the grain, the BoJ is expected to increase its policy rate to 0.75% - the highest in 30 years. Since raising rates in January, the BoJ has held policy but maintained a bias toward further hikes. This meeting may see them pull the trigger once again and resume tightening. Wage growth has strengthened and is leading to persistent inflation, which should provide the BoJ with the confidence to hike.

• US market participants await jobs data and an inflation update. Payrolls for both October and November will be released, which is likely to print weakly for the former and stronger for the latter. The unemployment rate for November will also be released, and expected to come in at 4.4%. The Nov CPI report will be the first update in almost two months, and is expected to show inflation drifting higher led by tariff pass-through.

See our Weekly Calendar for more.