Westpac economists predict New Zealand will avoid a technical recession but face a challenging year ahead as geopolitical tensions drive up fuel costs and living expenses. The bank's latest economic outlook points to a surge in energy prices stemming from Middle East conflict that will dampen economic growth and force the Reserve Bank to maintain higher interest rates for longer.

The elevated fuel and living costs are expected to reduce household disposable income and weaken consumer spending power, creating headwinds for the domestic economy. Westpac warns this will particularly impact the housing market as stretched budgets limit buyers' capacity. While the economy may dodge the technical definition of recession, the bank describes the outlook as 'rocky' with another year of sub-par growth likely as New Zealand's economy gets 'knocked off course' by these external pressures.