Businesses in New Zealand are forecast to gain more confidence to invest in the second half of the year, as declining inflation and interest rates provide consumers with more disposable income.

According to the latest projections from economic think tank Infometrics, the country’s economy is expected to experience an annual growth rate of 2.5% starting in the middle of the year, as the Reserve Bank finalises its latest round of interest rate reductions, RNZ reports.

“Household spending has already shown signs of turning around in the second half of last year,” stated Infometrics chief forecaster, Gareth Kiernan.

“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,” he added.

That said, Kiernan stated that the prospects for further interest rate cuts beyond mid-year are not looking favourable.

“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,” he went on to say.

The report also stated that expectations of higher export revenues must also be considered in light of the increased uncertainty surrounding the global geopolitical and trade landscape.

In addition, exporters must exercise caution, as US tariffs could hinder the export growth observed over the past five years, and issues within the Chinese economy also pose a negative impact on exports, according to the findings.