“That’s not enough, in our view. We’re likely to need another 50bps beyond that, to get the economy humming once more … the RBNZ may pause in July at 3.25%, but we expect the data to evolve in a way that demands more rate relief.”

The Reserve Bank has made 225bps of cuts since August last year, easing pressure on borrowers as interest rates fell in unison.

One, two and three-year interest rates are now around or just below 5% at the major banks, down from interest rates of more than 7.5% in late 2023.

The economy was “crawling out of last year’s deep recession”, but the recovery was taking longer than expected, and the outlook for global growth was “cloudier than ever”, the economists wrote.

“As a small, open economy, we’re especially vulnerable … the future may unfold in many different ways, but the balance of risks is skewed to the downside for the Kiwi economy, near term.

“But we maintain a sense of optimism into 2026.”

The country had been poised for recovery, with purchasing managers’ indices (PMIs) positive and healthy export earnings in the rural sector.

PMIs showed whether manufacturing was expanding or contracting.

But the external sector was most vulnerable to the risks offshore, and a slowdown in growth was inevitable – the IMF and OECD had already slashed their forecasts, the economists wrote.

The recession had been a tough time for many businesses and households, with economic activity per capita shrinking by more than during the GFC.

“Unfortunately, we may be crawling for a little longer … we forecast the economy growing just 0.9% this year, down from our previous forecast … of 1.4%.”

The Reserve Bank’s previous house price forecast had also proved too optimistic, as high levels of stock had “flooded the market”, they wrote.

“We still – somewhat optimistically – expect to see a lift in prices over the spring and summer months, recording a 2/3% gain by year end.”

A further loosening in the labour market was also expected before employment growth rebounded into next year.

The current unemployment rate is 5.1% – a three-year high, up from a low of 3.2%.

“And beyond the headline rate, all other labour indicators remain anaemic. Employment is barely growing. The full-time workforce continues to shrink.”

On inflation, the economists saw a near-term spike to 2.7% this year – but there was “no need to panic”.

Higher tariffs would likely reduce medium-term inflationary pressures and import prices would likely fall as exporters adjusted to weaker global demand, they wrote.

Trade diversion would also weigh on import prices.

“Goods made in China and destined for the US may wash up on our shores at a discount.”

In terms of inflation, the economists wrote there was a risk of it falling below the Reserve Bank’s 2% midpoint.

“[The] RBNZ will need to move policy settings from restraining the economy to supporting it. The outlook requires further easing.”

They were sticking with a 2.5% forecast end rate, even as the path toward it was “shrouded in uncertainty”, the economists wrote.

“Our economic prosperity is inextricably tied to that of our trading partners. At risk of stating the obvious, there are many ways the future may unfold.”

Cherie Howie is an Auckland-based reporter who joined the Herald in 2011. She has been a journalist for more than 20 years and specialises in general news and features.