New Zealand's economy is expected to be flat for about 18 months before slowly improving, according to Westpac's chief economist.

Kelly Eckhold gave locals an overview of how the economy is holding up at a presentation at Westpac's Ashburton branch this week.

The Reserve Bank of New Zealand would have to "stay the course to do the job" to get on top of inflation - which meant interest rates were unlikely to be cut this year.

"It's a very weak economy but there are positive indicators for the future."

Eckhold said the manufacturing and retail sectors had been hardest hit as people "closed their wallets" as a result of higher interest rates and higher mortgage payments - and the Covid effect.

During the Covid pandemic, people were stuck at home and "binged on goods" because they couldn't spend on anything else. But post-pandemic people have switched from consumer goods to consuming services, both globally and in New Zealand.

Eckhold said the economy had been weak for a while but there was potential for better times ahead.

While New Zealand was technically in a recession, other indicators suggested the economy was doing better than some numbers indicated. This included a rise in business confidence, he said.

Weak growth in the wider global market meant exporters and the primary industry sector were facing challenging times.

Dairy and other commodity prices fell last year, but there had been some recovery in dairy and in logging, Eckhold said.

"The outlook for commodities is not flash. It's going to be a tough outlook with gradual improvement."

The Covid shock unearthed vulnerabilities in the Chinese market, burst the property bubble, and left China struggling with high levels of young people unemployed - which was why meat and dairy prices have been low.

The number of Chinese tourists visiting New Zealand had only recovered to half the previous pre-Covid levels, he said.

In contrast, the US economy had "sailed through the Covid shock really well" and had consistently performed better than economist's expectations, he said.

Westpac's forecast average farm gate milk solid price is $7.80 for this year and $8.40 next year, with some risk of next year's forecast being revised downward.

Eckhold said they wouldn't be fantastic years for farmers, but not disastrous years either.

There was some good news for the rural sector. Farm inflation, which was running well ahead of general inflation, was back to more normal levels - and at breakeven levels for farmers.

Interest rates would be a key factor for the rural sector this year, with things like rising insurance, wages and local authority fees adding pressure on farm profits.

Globally, there were a few "big hairy risks" out there. This included the impact that tensions around the Suez Canal on shipping times and costs and the risk of the conflict in the Middle East escalating and affecting oil prices.

"A lot of big countries are having elections this year."

If Donald Trump won the US election New Zealand risked being the "piggy in the middle" between China and the US with Trump's talk of across-the-board tariffs.

"Trump would not be a fantastic trade environment for New Zealand," he said.

Sanctions were a risk.

"Food doesn't usually get sanctioned, but good luck getting paid for that - but the best case scenario was things got heated but not disrupted."

Eckhold said New Zealand should look to diversify its export markets to include countries other than China and the US.

By Sharon Davis