Kiwibank economists are warning that New Zealand's improving economic recovery faces a fresh challenge as conflict in the Middle East threatens global oil supplies and increases uncertainty for businesses and consumers.
Report by elocal
In its latest weekly commentary, Kiwibank says financial markets appear surprisingly calm despite a rapidly deteriorating geopolitical situation, with oil prices remaining near US$80 a barrel even as significant supply disruptions continue to develop.
Economy Started The Year Strong
Before the latest escalation in the Middle East, New Zealand's economy was showing encouraging signs of recovery.
The March quarter delivered GDP growth of 0.8%, while the December 2025 quarter was revised higher to 0.5%. Economic activity increased 1.5% over the year, with nine of fourteen industries recording growth.
Kiwibank noted that investment in machinery, technology and computing equipment was particularly strong, suggesting businesses may already be investing in artificial intelligence and productivity-enhancing technologies.
The bank believes New Zealand entered the current oil crisis from a relatively solid economic position.
Oil Markets May Be Underestimating The Risk
Despite growing instability in the Middle East, Kiwibank believes oil markets may not yet be fully reflecting the scale of the supply challenge.
According to the bank, more than one billion barrels of oil supply have effectively been removed from global markets this year due to the conflict involving Iran.
So far, strategic reserves and existing stockpiles have helped buffer the impact, but Kiwibank warns those reserves are becoming increasingly depleted.
The report suggests that if current disruptions persist and supply shortages become more apparent, crude oil prices could potentially move into the US$150 to US$200 per barrel range.
Such a move would have significant implications for fuel costs, inflation and economic growth worldwide.
Construction Remains A Weak Spot
While GDP figures were stronger than expected, Kiwibank noted that construction remains one of the weakest sectors of the New Zealand economy.
Construction activity fell 1 percent during the quarter, acting as a drag on overall economic growth.
The bank said this weakness was consistent with concerns and commentary coming from the construction sector over recent months.
Central Banks Hold Steady
Internationally, four of the five major central banks monitored by Kiwibank held interest rates unchanged last week.
Japan was the exception, increasing rates by 25 basis points.
Meanwhile, the US Federal Reserve maintained a relatively hawkish tone despite leaving rates unchanged, signalling continued concern about inflation and future price pressures.
Financial markets responded by pushing expectations for future rate cuts further into the future.
Kiwi Dollar Under Pressure
The New Zealand dollar weakened over the past week as investors moved toward the stronger US dollar.
Kiwibank's financial markets team said the Federal Reserve's outlook was the primary driver, with markets now anticipating a longer period of elevated US interest rates.
The kiwi fell from near US58.5 cents at the start of the week to close near US57.4 cents.
Businesses Face Challenging Months Ahead
Kiwibank says the key question now is whether New Zealand can maintain its economic momentum as geopolitical uncertainty intensifies.
The bank warns that higher energy costs, global instability and ongoing conflict in the Middle East could undermine some of the gains achieved during the first quarter of the year.
For businesses already dealing with cost pressures and an election year, resilience may become increasingly important through the second half of 2026.
elocal Analysis
Kiwibank's commentary reinforces what many businesses and households are already sensing — New Zealand's recovery remains fragile.
The strong March quarter GDP result demonstrates that parts of the economy were beginning to recover before the latest Middle East escalation. However, New Zealand remains heavily exposed to international energy markets.
For a nation dependent on imported fuels, any sustained disruption to global oil supplies eventually flows through to transport costs, business costs and household budgets.
While markets currently appear relatively relaxed, Kiwibank's warning that oil could potentially rise toward US$150–$200 a barrel highlights the scale of the risk should supply disruptions worsen.
For now, New Zealand's economy remains on a recovery path. The challenge will be whether that momentum can survive another major global shock.
Kiwibank Weekly Commentary
Original Kiwibank economic and financial markets update.
Report by elocal
This report is based on original Kiwibank commentary and includes additional context and analysis prepared by the elocal editorial team.