According to Westpac’s latest economic outlook, many families could soon be dealing with higher living costs and a softer job market.
After signs of recovery earlier in the year, the economic outlook has shifted significantly due to renewed conflict in the Middle East. This matters greatly for New Zealand because higher fuel prices flow through almost every part of the economy. Transport costs rise, and those costs are often passed directly to consumers.
This creates immediate financial pressure for households. Many families who were already carefully managing budgets may now feel they are losing ground again after hoping inflation was finally coming under control.
Westpac expects annual inflation to climb back into the 4 to 5 per cent range over the next year. This is a worrying development because inflation had been easing, raising hopes that interest rates would remain stable or fall. Instead, the Reserve Bank may now need to lift the Official Cash Rate to stop inflation from becoming entrenched again.
Higher interest rates would be particularly painful for homeowners with mortgages. Even modest rate increases can add hundreds of dollars per month to repayments. This comes at a time when many are only just adjusting to the previous cycle of rate hikes.
The labour market is also expected to weaken. Westpac forecasts unemployment could rise to around 5.6 per cent over the coming year as businesses delay hiring decisions. Firms often become more cautious when they face rising operating costs and unclear economic conditions. Expansion plans are postponed, and in some cases, staffing levels are reduced.
For workers, this could mean fewer job opportunities and tougher competition for roles. Graduates, school leavers, and part-time workers may find it particularly difficult to secure employment.
The housing market is also expected to remain subdued throughout 2026. With confidence weakening and mortgage rates rising again, house prices are likely to stay flat or edge lower. While this may provide some relief for prospective buyers, it also reflects a broader lack of confidence in the economy.
Construction and business investment are also forecast to slow as companies hold off on major spending decisions until conditions become clearer. This further reduces economic momentum and makes a stronger recovery less likely.
Although Westpac is not forecasting a recession, economic growth is expected to remain weak at around 1.5 per cent in 2026. Stronger growth is not expected until 2027, assuming global tensions ease and inflation pressures moderate.
For the average New Zealander, the message is clear: the next year is likely to bring continued financial pressure and little relief from the cost-of-living squeeze.
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