IMF forecasts modest New Zealand growth, elevated inflation
- Sydney (15 April)
The International Monetary Fund (IMF) expects New Zealand’s inflation rate to reach 3.2% by the end of 2026 because of elevated fuel prices, the agency said in its World Economic Outlook early on 15 April.
New Zealand’s unemployment rate will grow to 5.4% in 2026, from 5.3% a year earlier, but its economy will grow by 2.1% over the year, in real terms, according to baseline IMF forecasts.
“Our [baseline] forecast assumes a short‑lived [Iran] conflict and a moderate 19 percent rise in energy prices in 2026,” IMF Research Director Pierre-Olivier Gourinchas said at a press conference.
The IMF expects global inflation and real economic growth rates to hit 4.4% and 3.1%, respectively, in 2026, under its baseline scenario. But inflation could surge to 6% and growth could fall to 2% if the US-Israeli war in Iran extends into 2027, Gourinchas said.
The Reserve Bank of New Zealand (RBNZ) maintained its overnight cash rate at 2.25% on 8 April. “Weak demand and spare productive capacity in the economy should constrain the degree to which higher costs can be passed on [to consumers],” the bank’s Monetary Policy Committee said at the time.
But 58% of businesses recently surveyed by the Employers and Manufacturers Association (EMA) plan to raise prices because of the war, the industry group said on 7 April.
“Returning [New Zealand] inflation to the [RBNZ’s] 2% target mid-point over the medium term requires core inflation and wage growth being contained, and medium- and long-term inflation expectations remaining around 2%,” the Monetary Policy Committee said.
Diesel prices in New Zealand – which influence freight rates – have increased over the last month, from NZ$2.84/litre (A$2.35/litre) to NZ$3.87/litre, pushing up business costs across a range of sectors.
For instance, recent fertiliser price increases in the agricultural sector have likely come from elevated delivery costs to farms, Federated Farmers’ Northland President Colin Hannah told Lithos on 8 April. Most fertiliser producers expect stocks on hand to last until spring, Hannah added.
By Avinash Govind