Over the longer term, the migration-led population growth should support a recovery in activity, it said.
NZIER’s release comes ahead of data due from Stats NZ on Thursday, which is widely forecast to show growth was mostly flat over the December quarter.
The Reserve Bank, in its quest to get annual CPI inflation bank to within its desired 1 to 3 per cent range, started hiking its official cash rate, then at 0.25 per cent, late in 2021 to 5.5 per cent early last year.
NZIER said the transmission of the increases in the OCR were expected to drive a continued slowing in demand over the coming year.
Forecasts of household spending have been revised much lower for 2024 and 2025.
Despite the strong net migration inflows, retail sales have been weak over the past year.
“A further slowing in household spending is expected, given that around 56 per cent of mortgages are due for repricing within 12 months.
“For residential investment, the outlook has been revised lower for 2025.”
Both Stats NZ’s dwelling consent issuance and the NZIER Quarterly Survey of Business Opinion’s (QSBO’s) architects’ work in their own office point to a slowing in short-term residential construction demand for the coming year.
However, the migration-led population growth should underpin a recovery beyond 2025, NZIER said.
Forecast household spending growth had been revised lower to below 1 per cent for 2024 and 2025.
“This downward revision reflects the weak retail sales in the December 2023 quarter and expectations for a further slowing in household spending as many households face further increases in their mortgage repayments as they refix their mortgage rates over the coming 12 months,” NZIER said.
The inflation outlook was broadly unchanged.
Annual CPI inflation is forecast to ease to 4.2 per cent in 2024 before decreasing to 2.4 per cent in 2025.
Strong net migration inflows remained the key upside risk to inflation.
The ongoing tensions in the Red Sea may also present an upside risk for tradeable inflation as it increases global shipping costs.
The export growth outlook had further eased for 2024, NZIER said.
“Higher interest rates are weighing on global growth and, in turn, demand for New Zealand exports, especially demand from China.
“Forecasts for 2025 have been revised higher, reflecting expectations for improved global economic conditions over the coming year.”
The import growth outlook has been revised lower for 2024 and 2025, reflecting expectations of weaker domestic spending.
Forecasts for interest rates are also broadly unchanged.
This reflected the expectations for interest rate cuts being unlikely any time soon, given the Reserve Bank reiterated that its intention to keep the OCR at 5.50 per cent and its need to stay at a restrictive level for a sustained period.
“With annual CPI inflation still well above the inflation target band, interest rates will need to remain restrictive.”
The consensus forecasts are an average of New Zealand economic forecasts compiled from a survey of financial and economic agencies, comprising the main banks, NZIER, the Reserve Bank, and the Treasury.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
