ASIATODAY.ID, WELLINGTON — New Zealand’s fragile economic recovery is at risk of sliding into a new crisis after soaring global oil prices triggered by the Middle East conflict hit households, businesses, and inflation, the International Monetary Fund (IMF) warned on Tuesday.
In its latest 2026 Article IV Mission concluding statement, the IMF said the country’s recovery has lost momentum just as growth was beginning to return following a prolonged economic slowdown.
The Fund warned that the surge in energy prices has delayed New Zealand’s recovery, pushed inflation back above the target range of the Reserve Bank of New Zealand (RBNZ), and increased uncertainty across the economy.
Fuel prices jumped by as much as 37%, while diesel prices briefly doubled earlier this year, raising transport costs, eroding household purchasing power, and increasing production costs for businesses. The IMF said the shock has weakened consumer spending, reduced business confidence, and prompted companies to postpone investment.
New Zealand’s economy expanded by 1.5% in the first quarter of 2026, but the IMF expects output to contract in the second quarter before a gradual recovery later this year.
Although the Fund forecasts economic growth of around 2% in 2026 and 2.7% in 2027, it warned that those projections depend heavily on global energy markets stabilizing and geopolitical tensions not escalating further.
Inflation is expected to climb to around 4% by mid-2026, remaining above the central bank’s target until the end of the year. The IMF cautioned that renewed spikes in oil prices could prolong inflation and force tighter monetary policy, further slowing economic activity.
The report also highlighted mounting fiscal pressures. Public debt has risen to an estimated 27% of GDP, prompting the IMF to urge the government to rebuild fiscal buffers through spending discipline and structural tax reforms while preserving investment in critical infrastructure.
Beyond immediate economic risks, the IMF warned that New Zealand must address long-standing structural weaknesses, including weak productivity, limited innovation, shallow capital markets, and housing affordability challenges.
The Fund also identified artificial intelligence as a major opportunity to boost long-term growth but stressed that workforce retraining and digital investment will be essential as automation reshapes the labor market.
Despite the increasingly uncertain outlook, the IMF said New Zealand retains strong economic institutions, including a flexible exchange rate, a credible central bank, and sound fiscal governance.
However, it warned that a prolonged geopolitical crisis or another surge in global energy prices could derail the country’s recovery and deepen economic vulnerabilities. (AT Network)
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