Forecasts from the Reserve Bank of Australia (RBA) project the nation’s annual economic growth rate will decline to 1.8% by December and further to 1.6% by June of next year, a trajectory described by the Australian Financial Review as a “dire warning.” This represents the lowest medium-term growth outlook in the RBA’s forecasting history, which dates back to 1990.
The projected slowdown in Australia contrasts sharply with New Zealand’s economic outlook. The Reserve Bank of New Zealand (RBNZ) forecasts GDP growth of 0.5% for the year to March 2026, increasing to 2.8% by March 2027, and 3.1% by March 2028. Westpac economists are even more optimistic, predicting growth of 3.3% for 2026, followed by 2.7% in 2027.
This divergence comes as a significant number of New Zealand citizens have been emigrating to Australia, drawn by stronger labour market outcomes and higher wages. In the year to October 2025, a net 45,088 New Zealand citizens departed the country, with approximately 30,000 relocating to Australia. Australia’s unemployment rate, at 4.3% in October, was 1% lower than New Zealand’s.
However, Australia’s stronger post-pandemic recovery is now facing headwinds. Inflation in Australia reached 3.8% in the December quarter, prompting the RBA to increase the Official Cash Rate to 3.85%, with further hikes anticipated. The Australian economy is too grappling with declining productivity since the Covid-19 pandemic, limiting its capacity for sustained growth without triggering inflation.
The RBA’s forecasts come amid criticism of the Australian Labor government’s spending policies. Some observers argue that government expenditure is crowding out private sector investment at a time when the economy is operating at capacity.
New Zealand, conversely, has experienced three years of recessionary conditions, preventing the economy from reaching its potential growth rate. While this has kept inflation in check, it has also constrained wage growth. New Zealand’s unemployment rate recently rose to 5.4%.
Economists anticipate that inflation in New Zealand will fall back within the RBNZ’s target range of below 3% later this year. The RBNZ forecasts unemployment to decline to 4.5% by March, while the RBA projects Australia’s unemployment rate to rise to 4.6% by June 2028. This suggests a potential reversal of fortunes in the labour markets of the two countries.
The differing trajectories of the Australian and New Zealand economies could influence migration patterns. A sustained period of improving job prospects in New Zealand, coupled with deteriorating conditions in Australia, may stem the outflow of New Zealand citizens and potentially reverse it. The Australian dollar and New Zealand dollar wobbled on Monday following the nomination of Kevin Warsh as the next U.S. Central bank chief, lifting the U.S. Dollar.
whether New Zealand can capitalize on this opportunity and close the wealth gap with Australia will depend on its ability to boost productivity and enhance its long-term economic growth potential.