New Zealand’s economy and growth are recovering gradually but high electricity and transport costs, subdued net migration and an unemployment rate over 5%, continue to impact the country’s momentum, a new OECD report has found.
The OECD (Organisation for Economic Co-operation and Development) released its 2026 Economic Survey of New Zealand on Thursday. It says accommodative monetary policy, resilient tourism and exports have supported the country’s economic recovery.
Growth also was expected to recover gradually to 1.4% in 2026 and 2.3% in 2027, the report said. But this recovery is projected to be fragile and uneven in the near term; “as heightened uncertainty and higher energy prices weigh on real incomes, confidence and domestic demand.”
“Unemployment is projected to remain elevated before declining in 2027 as demand recovers. Inflation will rise in 2026 due to higher energy and transport costs before gradually easing toward the 2% midpoint, reflecting spare capacity and easing tradeables inflation pressures,” the OECD said.
“Although considerable uncertainty surrounds the timing and magnitude of this adjustment, given the risk of further shocks.”
“Global policy turbulence, costly and insecure electricity, ageing-driven fiscal pressures, investment gaps, shallow capital markets and limited risk capital require sustaining the reform momentum,” the report said.
‘Electricity prices are structurally too high’
The report said despite high shares of renewable energy and a strong pipeline of new renewables generation; “energy prices are structurally too high due to falling gas supply and underinvestment in firming capacity.”
Gas shortages have pushed up wholesale electricity prices and risk premiums, the OECD said.
“Dry years now trigger prolonged price spikes, forcing industrial shutdowns."
The report said policy and weak revenue uncertainty have stalled investment despite rising demand, which has left the system close to security limits even as renewables investment grows.
Immediate action is needed to restore resilience and affordability, the report said.
The Government’s proposal of a Liquefied Natural Gas import terminal should be treated as a short-term transition tool, it said.
“Affordability will remain elusive without breaking the gas–electricity price link by scaling non‑gas long‑duration firming, expanding demand response and strengthening competition.
“This requires a mandatory firming and flexibility market and could need minority Crown investment in independent-led, long-duration non-gas firming generation.”
The OECD also called for electricity sector reform in 2024.
Maintaining the stability of the Reserve Bank’s mandate
The Reserve Bank (RBNZ) is charged with maintaining inflation between 1% and 3% and it specifically targets 2%.
The OECD said inflation faced renewed pressures from higher energy prices; “while weak competition, rapid rises in administrative prices such as local government rates and climate-change-induced rises in insurance premiums make inflation control more difficult.”
The report said these conditions underline the importance of anchoring inflation expectations, especially with the ongoing conflict in the Middle East, and maintaining the RBNZ’s operational independence, credibility and accountability.
“Maintaining stability of the mandate and remit outside scheduled five-year cycles, would support the Bank’s credibility and to enhance its ability to deliver on its inflation objectives.”
Vulnerabilities persist among highly indebted households, and small and medium businesses
New Zealand’s financial system appears resilient, the report said, as it is underpinned by high capital and liquidity buffers, and the new depositor guarantee scheme.
“Stress tests suggest banks can withstand severe shocks, but vulnerabilities persist among highly indebted households and SMEs (Small and Medium Enterprises).”
The OECD said macroprudential tools like debt-to-income limits should continue to be used to avoid risks that move with the economic cycle.
“Reforms to boost competition in the banking sector, including open banking to make switching banks easier and provide cheaper and more direct online payments channels, and a review of capital requirements, are welcome steps to improve credit flows.”
‘A need to continue fiscal consolidation’
Ageing will push health and pension costs up by around 5% of gross domestic product (GDP) by 2026, “putting public debt on an unsustainable path without reform," the OECD said.
“There is a need to continue fiscal consolidation to address the structural deficit in the short to medium term. The conflict in the Middle East may call for further targeted support. However, this should be temporary.”
Raising efficiency when it comes to health spending, and reforming private and public pension settings could help in the long term, The report said. It also suggested other revenue measures such as “weight-based road user fees, and a tax on land rezoning, could help increase the fiscal balance while supporting environmental goals.”
“A proactive approach to managing the Crown balance sheet is crucial to optimise returns and reduce fiscal risks.”
The report said deepening critical markets was critical for growth.
“Shallow capital markets and low private pension savings constrain funding for innovative firms.”
Lifting KiwiSaver contributions, moving taxation of saving away from contributions and returns to withdrawals are central, the OECD said.
“Expanding venture growth capital, reviving public listings and deepening SME debt markets would mobilise savings, help firms scale and raise productivity.”
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