SYDNEY—New Zealand’s ruling conservatives led by a slim margin in an election Saturday, despite facing a backlash from voters over the cost of living, rising interest rates and a patchy economic recovery.

With 96% of the vote reporting, the center-right National Party and its smaller right-wing allies New Zealand First and ACT were projected to win 67 seats, which would likely be enough for a majority in Parliament and extend Prime Minister Christopher Luxon’s three years in charge.

The Labour Party of former Prime Minister Chris Hipkins and its left-wing Green Party allies were heading for a tally of 51 seats, while minor parties are forecast to win 12 seats. The Parliament typically has 120 seats, but this can vary depending on the vote count.

The tight margin means it could be weeks before a definitive outcome is known, as New Zealand counts some ballots—known as special votes—up to 10 days after election day. If those ballots were to cost National and its allies a majority in Parliament, they would need to forge a broader coalition to remain in power. That sets up the minor parties as potential kingmakers with an outsize sway over the identity and agenda of the next government.

Luxon said National had a pathway to form the next government, but the outcome was too close to call with an estimated 300,000 special votes still to be counted.

“Every vote matters and every vote must be counted,” Hipkins told Labour supporters.

The election, in a country long viewed by the U.S. as a key regional partner and fellow member of the so-called Five Eyes intelligence alliance, was the latest defined by voter disquiet over the impact of rising global interest rates and stubbornly high inflation.

Polling had consistently hinted at a tight race, with pocketbook challenges consistently topping surveys as the biggest concern for voters. Issues such as immigration, prominent in U.S. cultural and economic debate, were rarely cited as major worries by New Zealanders.

“It’s essentially the same election as 2023: It is still the fact that we have high inflation. Different reasons, but it’s still the cost of living,” said Dennis Wesselbaum, a former president of the New Zealand Association of Economists.

The election took place against a backdrop of intensifying diplomatic outreach by New Zealand, the U.S. and other allies to limit China’s clout in the Pacific. Last year, New Zealand’s then defense minister said Chinese military drills in the Tasman Sea, the body of water between Australia and New Zealand, were a wake-up call for her country of some 5.3 million people.

In August, the U.S. and New Zealand agreed to spend a combined $60 million to upgrade a port in the Cook Islands that the U.S. military built as a key logistical base in the World War II.

Still, New Zealand must balance its military alliance with the U.S. with a close trade relationship with China, which is its top buyer of commodities such as milk, butter and lumber. Experts also said New Zealand lawmakers have needed to tread carefully in their relations with the current White House as a warm embrace risks alienating some voters at home.

“President Trump is incredibly unpopular in New Zealand and that carries through into perceptions of the United States,” said David Capie, director of the Centre for Strategic Studies at Victoria University of Wellington. “At a high political level it’s quite difficult to do high-profile things together. On the working level, we’re seeing a lot of business as usual.”While New Zealand’s economy emerged from a double-dip recession months after the 2023 election, inflation has been running above the central bank’s midpoint target since 2021. The Reserve Bank of New Zealand—one of the first central banks to increase interest rates from their Covid-era lows—has lifted the cash rate twice since mid-2026 in response to resurgent inflation.

Fuel and electricity are significant drivers of recent price growth, while local governments have raised taxes to improve infrastructure strained by increased tourism.

National Party leader Luxon, a former chief executive of Air New Zealand, argued during the campaign that inflation was a result of issues beyond his government’s control, pointing to the impact of the oil-price surge that followed this year’s attacks on Iran by the U.S. and Israel. Promising not to raise taxes, Luxon said tight control of government spending would help mitigate the impact of so-called imported inflation.

Labour’s policies included taxing investment properties and reimposing a ban, scrapped by Luxon’s government, on offshore energy exploration. It also said it would cut immigration to reduce the load on hospitals, roads and housing supply.