Insights 
VT 
The New Zealand Institute of Economic Research (NZIER) surveyed economists, revealing key forecasts for the nation.
The annual average GDP growth is predicted to contract by 1.1 percent by March 2025, then rise to 1.9 percent the following year.
Economic Growth Boost
Lower interest rates are anticipated to boost economic growth.
A soft labour market is contributing to household caution, yet many will find relief through reduced mortgage repayments.
This financial relief may lead to a recovery in discretionary spending over the next few years.
Inflation is projected to stabilise around the Reserve Bank of New Zealand’s target midpoint of 2 percent in the coming years.
Monetary Policy Implications
What’s been set out here, in fairly measured terms, is that after a brief dip, a modest rebound in growth is expected within the next 12 to 18 months. The contraction—1.1 percent down on the annual GDP by March 2025—reflects the tail end of tight monetary conditions and soft domestic demand. It signals less activity overall: fewer goods being produced, less spending, less investment.
But forecasts then show a lift. A 1.9 percent expansion the following year, while not stellar, marks a pivot in direction. That pick-up will not occur in isolation. It’s counted on the back of lower borrowing costs—costs that would naturally follow if interest rates head down, as predicted.
So we’re looking at a period where lower official rates could feed through to banks’ lending rates. If that materialises as expected, households would see some cash freed up, most directly through smaller mortgage repayments. That tends to feed into higher confidence and, later on, more spending on non-essentials. The pause in tightening measures also eases conditions for small businesses reliant on short-term credit.
But caution remains. The cooling labour market—read: fewer job openings, flat wage growth—makes people careful. Folks are slower to spend if they’re worried about ‘what’s next’ at work. As a result, any spending bump from falling rates may arrive gradually, not all at once.
Looking at inflation, the projection is for it to settle around 2 percent, in line with official targets. That doesn’t suggest it drops off sharply from here, rather it drifts down steadily into a more neutral zone. No shocks. No wild swings. For those of us watching derivative markets, that points to reduced volatility in price expectations, especially in medium-term rate trades.
Given these projections, the reaction in longer-term rate products could become more decisive than in recent months. Especially with front-end rates seeming to inch closer to their downward turning point. We’ll be weighing expectations more heavily now, not just in macroeconomic terms, but in forward guidance shifts and timing cues.
Those operating in options spaces should also keep an eye on implied volatility levels as rate expectations settle. It’s highly likely we see a fall in risk premiums priced into near-term contracts. Flat inflation combined with expected rate declines tends to compress those premiums.
The outlook released by NZIER is rooted in current data and a measured timeline. There’s nothing particularly immediate within that profile to suggest a gear shift in monetary settings before the year-end. But the carry implications matter. Particularly for trades sensitive to delayed recoveries or asymmetrical changes in consumer confidence.
