High-frequency data pointed to slowing momentum across services industries and households in New Zealand as the conflict in the Middle East leaves global oil markets tight, and shipping costs and refining margins elevated, ANZ said in its Quarterly Economic Outlook report on Wednesday.
New Zealand's first quarter gross domestic product (GDP), largely pre-dating the shock, is expected to print strongly at 0.9% quarter-over-quarter. Growth over 2026 is anticipated to come in at 1.5% year-over-year, before advancing to 2.6% and 2.8% in 2027 and 2028, respectively. Annual inflation is forecast to accelerate to 4.4% year-over-year in the second quarter before slowing to 4.3% in the third quarter and reaching 4.1% by the end of the year.
ANZ's Business Outlook suggests firms are absorbing some of the cost surge. Recent resilience in the Purchasing Managers' Index and ANZ's Heavy Traffic Index suggests some firms may be building up inventories to mitigate the risk of potential transport disruptions. The Reserve Bank of New Zealand is anticipated to begin normalizing the official cash rate in July, with three consecutive hikes. Higher fuel costs have driven a reduction in spending on more discretionary goods and services.
While the broad direction of travel for inflation and activity in the near term is known, the magnitude of the fallout for New Zealand businesses and households, and the persistence of this shock, remain unknown. The longer the shock continues, the greater the pressure on firms to pass higher costs on to consumers, and the more "demand destruction" may occur.
Consumer inflation expectations have jumped higher than during COVID-19, and firms' employment intentions are "clearly deteriorating." For low-income households, the cost-of-living squeeze is most acute, while upward pressure on mortgage rates may hit middle-income households the hardest.
Brent crude oil is assumed to fall to just under $90 per barrel by the end of the year, before falling to $80 per barrel by the end of 2027.