New Zealand's economy appears to be entering the initial phase of a recovery after more than two years of subdued activity, yet the Organisation for Economic Co-operation and Development warns that the rebound is delicate and exposed to several downside pressures, according to a report published by the OECD.
The report projects that growth will slowly recover to 1.4% in 2026 and accelerate to 2.3% in 2027. That improvement is expected to be supported by earlier monetary easing, resilient export performance and recent policy measures, including the investment depreciation allowance introduced under the Investment Boost programme.
On monetary policy, the OECD highlighted that cumulative interest rate reductions of 325 basis points by the Reserve Bank of New Zealand have helped underpin domestic demand. The report advised the central bank to "look through the initial fuel price shock" while maintaining anchored inflation expectations.
The OECD also expressed concern about the predictability of monetary policy after a series of changes to the RBNZ's mandate and remit since 2019. It recommended that New Zealand should "reinforce the RBNZ’s strong operational independence and credibility" by keeping the mandate and remit stable between five-year review cycles, together with strong accountability and transparency around Monetary Policy Committee decisions.
Fiscal policy is another focal point of the OECD's assessment. The organisation said New Zealand continues to have a structural fiscal deficit and should "continue fiscal consolidation in the short- to medium-term." The report recommended that any fiscal support tied to the U.S.-Israeli war on Iran should be temporary and targeted.
Projections in the report show general government gross debt rising from 59.4% of GDP in 2025 to 63.1% in 2027. The fiscal deficit is forecast at 3.9% of GDP in 2026 and 3.6% in 2027.
Looking further ahead, the OECD warned that population ageing will increase spending on health, long-term care and pensions by around 5% of GDP by 2060. Without structural reforms, the report cautioned, public debt could follow an unsustainable trajectory "towards 200% of GDP." To address those pressures, the OECD urged a comprehensive package combining public and private pension measures. Suggested elements include linking the pension eligibility age to life expectancy while taking into account occupational and ethnic differences, introducing means testing, reforming tax settings to encourage private pension saving, and increasing contributions to the NZ Super Fund.
Overall, the OECD paints a picture of a modest recovery that remains susceptible to renewed inflation shocks and long-term fiscal strains. The recommendations emphasize stabilising the monetary policy framework, pursuing measured fiscal consolidation in the near term and implementing deep pension and ageing-related reforms to prevent a sharp deterioration in public finances.
Context for markets and sectors
- Monetary easing and export resilience may support domestic demand-sensitive sectors such as retail and consumer staples.
- High energy costs and fuel price volatility could weigh on transport and manufacturing margins.
- Ageing-related fiscal pressures and pension reforms would have implications for financial services, asset managers and long-term government bond markets.