New Zealand's near-term economic outlook has weakened slightly since May, and growth in 2025 is now projected at 2.4%, Westpac Banking (ASX:WBC, NZE:WBC) said in a Tuesday report.

Growth is expected to rise to 3.1% in 2026.

Lower interest rates and strong export returns are continuing to support demand. However, the ongoing trade uncertainty, cost of living pressures, and the still slow pass-through of past official cash rate cuts into household budgets have been weighing on activity.

Inflation will remain elevated through the next six months, but it could ease in 2026. The central bank is expected to cut the official cash rate to 3% in August. Inflation will threaten the top of the central bank's target band later this year, the bank forecast.

Unemployment has risen to 5.2% and some further softening in the labor market is expected in the near term.

However, the worst-case trade war scenarios have been avoided. The 15% tariff imposed on New Zealand by the US is manageable, and exporters in many cases are successfully passing on tariff costs to their customers.

Government spending is unlikely to be a key driver of growth, and the analysts expect any unexpected tax windfalls to be spent in the 2026 budget rather than saved.