ASB has forecast aggressive action from the Reserve Bank to "jumpstart" the economic recovery, predicting successive rate cuts to bring the Official Cash Rate (OCR) to 2.25% by Christmas.
Released today, the bank's latest Economic Forecast Update highlighted that while the recovery was taking longer than hoped, resilient export performance and improving consumer spending were providing a "strong foundation for cautious optimism".
Chief economist Nick Tuffley said the economy hit a "pothole" with a sharper than expected 0.9% downturn in GDP in the June quarter and was now struggling to regain momentum, adding that monetary policy must take the lead.
"The economy feels like it needs a bit of a circuit breaker to overcome uncertainty and create courage for households to spend and businesses to invest and employ."
Signs of economic recovery had been encouraging with two "decent quarters of growth" in December and March, he said, but tariff turmoil and wider uncertainty had temporarily stalled momentum.
Tuffley said the Reserve Bank must now "hit the gas harder" to help the economy overcome the effects of its post-Covid tightening cycle.
"That won’t come from fiscal support, given the Government is still grappling with balancing the books after the Covid period surge in spending."
Lower interest rates were already filtering through household budgets and ASB expected further momentum as more mortgage holders refixed at lower rates.
Durable goods spending was picking up and strong export outcomes in dairy, beef, and kiwifruit were helping rural balance sheets.
Demand was also increasing in the housing market, but excess supply and cautious buyers meant price growth would remain modest.
Tuffley cautioned against expecting a dramatic rebound, saying it wouldn't be a "rockstar recovery – perhaps more indie pop/soft rock".
"New Zealand’s path to recovery is likely to remain bumpy, with progress shaped by ongoing changes in global trade, domestic demand, and the housing and labour markets.
"The coming year will be crucial in determining whether these early signs of improvement can develop into sustained growth and renewed confidence for households and businesses as the country continues to navigate the speed bumps of recovery."
The OCR will next be reviewed on October 8, and again on November 26 - with ASB expecting a 50 basis point cut followed by a further 25.
"The exact timing of OCR moves and the extent of monetary stimulus deployed is conditional on the economic outlook and forthcoming data," the bank said.
"The RBNZ will be mindful that there is a lot of stimulus yet to fully work its way through via mortgage refixing and strong agriculture incomes. Wholesale interest rates currently have 60bp of OCR cuts by year end. So, some – but not all – of the benefits of a lower OCR are already factored into term lending rates."
Incoming Reserve Bank Governor Dr Anna Breman will step into her new role from December 1, with her first OCR decision at the helm of the central bank to occur on February 18, 2026.
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