Photo: RNZ
Businesses are expected to have more confidence to invest in the second half of the year as easing inflation and interest rates give consumers more spending money.
The latest forecasts from economy think tank Infometrics indicate the economy will begin to see annual growth of 2.5 percent from the middle of the year, as the Reserve Bank completes the latest round of interest rate cuts.
"Household spending has already shown signs of turning around in the second half of last year," Infometrics chief forecaster Gareth Kiernan said.
"Those sort of job and income security concerns will still be there for households, but we look through the second half of this year, we do think as those sort of interest rate effects continue to come through and free up a bit more money in household budgets, as the labour market starts to improve, spending will pick up, and that will flow through into better demand conditions for businesses.
"It's almost of itself reinforcing, because then they feel more confident about taking on more workers and investing more as well. So yeah, more momentum for the economy as a whole later this year and into 2026."
However, Kiernan said the scope for more interest rate cuts beyond mid-year was not promising.
"The weaker New Zealand dollar, higher fuel prices, and concerns about more persistent price pressures internationally could cause a small uptick in inflation later this year.
"Higher commodity prices for meat and dairy, alongside continued strength in horticulture prices, will flow into better economic conditions in provincial areas throughout 2025.
"However, expectations of stronger export incomes also need to be viewed in the context of heightened uncertainty about the global geopolitical and trade environment."
Exporters would need to be cautious as United States tariffs could undermine export growth seen over the past five years, with problems in the Chinese economy also a negative for exports, Kiernan said.
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