Higher fuel costs, weak confidence delay recovery, and complicate mortgage rates
Higher global oil prices and worsening conflict in the Middle East have “firmly put New Zealand’s 2026 economic recovery on ice”, according to ASB, which now expects weaker growth, higher inflation, and a delayed recovery that will make conditions more challenging for households, first-home buyers and property investors.
In its latest Quarterly Economic Forecast, ASB has cut its 2026 GDP growth outlook by 1.6 percentage points and now expects the recovery to be pushed back into 2027.
Chief economist Nick Tuffley (pictured) said the effective closure of the Strait of Hormuz has already driven up local fuel costs and will push inflation higher over the coming year.
“Households were only just starting to feel some relief,” Tuffley said. “Higher fuel prices are now squeezing budgets again, and that pressure will be felt right across the economy.”
He noted that “we import all of our refined fuel, so sustained increases in oil prices quickly feed into higher transport costs, higher inflation and weaker household spending.”
ASB expects the June quarter to show a contraction as higher petrol prices hit consumer spending, tourism and business investment.
Westpac has delivered a similar message, cutting its 2026 GDP growth forecast from 2.8% to 1.9% and pencilling in a 0.4% June‑quarter contraction. Chief economist Kelly Eckhold warned that “the Iran War will have damaged confidence in the household and business sectors and will be prompting changes in spending and investment plans given people have no real idea on when conditions will improve.”
Inflation risks and mortgage rate outlook
ASB now sees annual inflation peaking at around 4% by mid‑2026, before easing below 3% in 2027 as energy prices stabilise and domestic demand stays subdued. That profile complicates the Reserve Bank’s path for the official cash rate and, by extension, mortgage rates.
“The RBNZ has reaffirmed it will focus on the medium-term impacts on inflation, not the more immediate impacts,” Tuffley said, adding that “in time, the OCR is still likely to go up, but we don’t see the RBNZ rushing.”
In its latest Economic Weekly, ASB noted the first clear hit to confidence, with March consumer confidence back at 2025 levels and views on big‑ticket spending firmly negative, a concern for durables spending and housing‑related purchases.
Tougher tests ahead as lenders tighten in uncertain economy
For mortgage advisers, the combination of softer growth, higher inflation, and fragile confidence points to more cautious credit conditions and pressure on serviceability tests.
“This is a time for contingency and scenario planning rather than reliance on any single forecast,” Tuffley said, adding that “households and businesses need to be prepared for a tougher, more uncertain period.”
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