BNZ sees an "orderly correction" with unemployment remaining low and business solid. Photo / Dean Purcell
BNZ sees an "orderly correction" with unemployment remaining low and business solid. Photo / Dean Purcell
New Zealand will slip into recession in 2023, according to BNZ's economics team.
In its latest outlook report, New Zealand at a Glance, BNZ forecasts a bounce in growth for the second quarter of this year, which would see us avoid recession in 2022.
But it sees a "modest contraction"in growth for the second and third quarters next year "as the economy is impacted by aggressive interest rate hikes and a moderation in global growth".
The good news was that "the correction would help the RBNZ achieve its objectives of 2 per cent inflation".
BNZ is forecasting CPI inflation to fall to an annual rate of 3.7 per cent by mid-2023 (from its current peak at 7.3 per cent).
"The headline annual CPI inflation rate has peaked at 7.3 peaked," Head of Research Stephen Toplis said. "The combination of falling global commodity prices and a softening housing market will meaningfully impact the CPI from [the 3rd quarter] onwards."
The initial drop would be marked, he said.
"We are forecasting it to dip under 4 per cent over the next year. But we forecast it will then take a further year for annual inflation to fall to the midpoint of the RBNZ's target band."
BNZ sees the official cash rate going to 4 per cent but is only forecasting unemployment to rise slightly - to 3.9 per cent by June 2023 (it's currently 3.3 per cent).
The report raises specific concerns about a slowdown in the economy of our largest trading partner, China.
But the most pressing issues were domestic.
"We think the biggest economic adjustments will occur in durables goods spending and residential construction," Toplis said.
"Rising tourism and relative strength in services' spending will be insufficient to fully offset these negatives."
Despite the technical recession call, Toplis strikes an optimistic tone in his wider view of the economic cycle.
"We are hopeful any correction will be relatively orderly as we enter this phase with solid business, household, banking sector and government balance sheets; a strong labour market; and the ability for the RBNZ to ease aggressively if required."
Stephen Toplis, Head of Research at BNZ.
This month ANZ and Westpac economics teams released quarterly outlooks forecasting New Zealand will avoid technical recession - two quarters of economic contraction.
But they see similar trends to the BNZ across the next 12 months, despite slightly different numbers.
ANZ chief economist Sharon Zollner warned there was still a risk of recession in early 2023 if international tourism and education didn't improve as quickly as hoped.
Westpac's Michael Gordon also sounded a note of caution around the recovery given the constraints on growth created by the tight labour market.
But there were early signs that demand was softening, some of the international price shocks of recent years were now receding, and longer-term expectations of inflation remained under control, he said.
"This suggests that inflation is on track to return to the Reserve Bank's target in the coming years, without the kind of shock treatment that was needed around the world in the 1970s and 1980s.
"International visitor numbers have been climbing rapidly since the border with Australia reopened earlier this year.
"However, like other parts of the economy, the hospitality sector is struggling with shortages of staff. Consequently, many service providers in the sector are still being forced to operate below pre-pandemic levels, even as demand has picked up."
