Predicting Uncertainty is Difficult

“Seven months great war, people dead through
Evil / Rouen Evreux the King will not fail”

Nostradamus
(A prediction for 2026)

Nicola Willis must be wondering what she has to do to get on top of inflation and get our local economy pumping, as the Middle East conflict has the potential to push inflation back up to 3.7%, a worst case scenario, and the jump in fuel prices threatens a cost of living crisis as we lead up to the end of year Election.

This time last year, we opened our first newsletter, stating the first of the OCR drops were underway and that the economy was showing good signs of turning for the better. The year turned out to be a disappointment, unless you were part of the rural community. Interest rates have come back from a floating mortgage rate of around 6.5%, in last March to a current offering of around 5.0%. The expectation was that rates would stay near the bottom until the second half of 2027, but that is now looking unlikely, particularly with what will almost certainly be a big jump in oil prices. The price of oil has a big say in the level of inflation, both from a product and transport perspective. The Reserve Bank has a real balancing act to deal with, with inflation already sitting at the upper level of their band, and the inflationary effect of a sharp jump in oil prices. As a rough guide a US $10 per barrel jump in crude equates to a NZ 11 c per litre at the pump. However, as we now carry little in the way of reserves, after the closure of Marsden Point, we are reliant on importing refined fuel from either South Korea or Singapore, and they are in a position to increase their margins, due to the level of demand. That said we have recently seen a $40 per barrel lift, followed by a $30 fall, just on some rhetoric from Donald Trump, and then a further jump again, indicating the high level of uncertainty around global supply.

New Zealand’s GDP was showing steady quarterly growth, with 2025 showing 1.6% yearly growth, and this momentum was looking to build through 2026, however the flow through effects of the Middle East conflict will dampen this in the short term.

We also mentioned the “Trump“ effect, with uncertainty around tariff’s, trade and security relationships, and military conflict. The length of the Middle East conflict and extent of damage done to the regions extraction and refining infrastructure will determine the level of this conflict on all the Worlds economies. The public in the US will have little appetite for a costly protracted campaign, costly in terms of American lives and dollars, whilst Israel will want to keep the US fully engaged to achieve an unlikely regime change in Iran, but at the bare minimum a drastic weakening of the military capabilities of Iran, Hezbollah etc. The region unfortunately has all the hallmarks of another Afghanistan as the various Kurdish tribes look to get a foothold in Iran.

The coalition came back from a Christmas break thinking the economy was recovering nicely to show positive signs towards the election at the end of this year. Economic commentary supports this; however, the strength of any recovery is very regionalised. Rural economies are benefitting from strong demand and prices for our exported products, further benefitting from a depreciating NZ dollar. Global Trade Dairy prices have risen for 5 consecutive auctions. Tourism is also rebounding strongly, again supported by the NZ dollar, so regions such as Queenstown are flourishing. Urban centres, with the exception of Christchurch, are lagging behind, with job security and slow population growth slowing economic growth. As a Country whose population rely on residential property for the bulk of their wealth growth our economy always stagnates when property prices do the same. This seems to be following National and Christopher Luxon like a bad smell, as polls have their popularity languishing at historically low levels. The devil is in the detail with the political polls, as to what questions are being asked. The average voter, when it comes to physical voting, will recognise that they are voting for a block of 2 or 3 parties, be it left or right leaning. This is where Labour has an issue with the quality of their 2 partners, with 1 likely to still be in dispute with a couple of their MPs in the lead up to the Election.

The financing markets started 2026 slowly, with most funders stating that January/February were quiet, but that things came to life in March. Global is seeing a greater appetite for developers looking to undertake projects, which is positive. A number of funders we deal with are reasonably aggressive on houses/terrace houses, but still cautious with apartments. The apartment market is now splitting into low-cost cheaper product , which is hard to fund, and upper end well located apartments, aimed at down sizers wanting to stay in their own area.

Sub-division funding is dependent on location, with a number of regions on the outskirts of city centres, but with good transport links, showing good demand. There is still plenty of money sitting with most non-Bank lenders, and they will be flexible on pricing for deals they like, so if you have a project, please contact us.