New Zealand’s fragile economic recovery faces energy “shocks” resulting from the war

While New Zealand’s fragile economic recovery shows signs of improvement, with economists expecting its annual growth to exceed that of its larger neighbor Australia, it faces a new threat represented by the repercussions of the war in the Middle East.

New Zealand is particularly vulnerable to energy shocks resulting from war, and economic crises in general, as this small and isolated island nation relies heavily on global trade and tourism. It is vulnerable to disruptions in supply chains and shipping.

New Zealand Finance Minister Nicola Willis said last week: “We would rather this not happen to the New Zealand economy, and this is not good for us.”

The economy and the cost of living will be central issues in elections scheduled for November 2026, and while confidence has been strengthening, with New Zealand showing signs that its economy is beginning to end its worst period in nearly two decades, the war has created new uncertainty.

“We have been through an economic recession that has been deep and long-lasting,” said independent economist Benji Patterson. Just like the one that followed the global financial crisis.”

Hard blow

The New Zealand economy was hit hard by the recession and stagnation that followed the Corona pandemic. The country has faced difficulties in regaining its balance, as inflation has increased pressure on companies and prompted families to curb spending.

In this regard, the economist, Shamubel Iacob, said: “It was two very difficult years,” explaining: “We witnessed a major contraction in the economy, loss of jobs, and the closure of companies.” But Iacob stressed that “there are indications that things are beginning to improve after reaching their lowest levels.”

New Zealand will soon release its latest economic figures, assessing growth before the impact of the conflict.

GDP data is expected to show that the New Zealand economy will grow by 1.6% during 2025, according to Westpac Bank forecasts.

Growth in New Zealand is also expected to accelerate to 2.8% this year, according to bank estimates, exceeding growth expectations of 2.5% for Australia.

The International Monetary Fund is also expected to estimate that New Zealand’s GDP will grow more than Australia’s economic growth in 2026, albeit by a small margin.

Signs of recovery

For his part, Westpac New Zealand’s chief economist, Kelly Eckhold, confirmed that the main economic indicators “have begun to improve in real terms” in recent months. “We were increasingly seeing signs that this economy had moved from being underperforming to one where it appeared to be growing at a really good pace,” he said.

Eckhold warned that the situation is still in the “early stages,” but signs of recovery, including rising job postings and labor force growth, are beginning to appear. Strong demand for the country’s exports, especially meat and dairy products, has also helped conditions begin to improve.

Tourism has increased significantly after the pandemic. A series of interest rate cuts also led to a significant decline in fixed mortgage rates, raising hopes for a sustained increase in consumer spending.

According to economist Benji Patterson, “This is the extra money for many families. It is the cost of a drink in a café, or buying a new bike, or spending a night somewhere.”

The economy stopped

However, the current war in the Middle East risks undoing this progress. The conflict has undermined strong confidence in New Zealand’s course in recent weeks, causing severe turmoil in energy markets and raising concerns about the global economy.

“I don’t think we would say this is a disaster for the economy yet,” Eckhold said, though he pointed to lowering growth forecasts for 2026.

The economist added: “I think it may be closer to stopping the economy for a quarter of a year or so until things calm down.”

Eckhold explained that after a record wave of worker migration from the country, periods of strong growth in New Zealand usually stop the flow of migrants to Australia, saying: “When there are more job opportunities at home, people will stay, if they want to stay.” After a difficult few years, confidence in New Zealand’s future remains fragile. People will not believe there is a recovery until they see and feel it spreading in their communities, according to Eckhold. About the Guardian

• The New Zealand economy suffered a severe blow due to the recession and stagnation that followed the Corona pandemic, as the country faced difficulties in regaining its balance.

• The war created a state of uncertainty after New Zealand showed signs that its economy was beginning to end the worst period it had experienced in two decades.