Brace for economic slowdown, no recession but lower growth for longer - NZIER

We have likely avoided a recession for now, but pundits aren't exactly predicting sizzling economic growth. Photo / Michael Craig

This Thursday’s GDP data is expected to show the economy kept growing in the September quarter. Economists expect a relatively low quarterly growth figure of 0.2 or 0.3 per cent for the three-month period.

But while that means we have likely avoided a recession for now, it may signal the beginning of a long period of slow growth, according to the consensus of economic forecasts.

The latest NZ Institute of Economic Research (NZIER) Consensus Forecasts report shows expectations for a general slowing in the New Zealand economy over the next two years, with forecasts for annual average annual growth in GDP of just 1.2 per cent in the years ending March 2024 and March 2025.

The NZIER publishes an average of New Zealand economic forecasts compiled from a survey of financial and economic agencies. The average forecasts do not necessarily represent the views of individual participants but are collated from work by the ANZ, ASB, BNZ, Westpac, KiwiBank, The Reserve Bank of New Zealand, The Treasury and NZIER.

The forecasts pointed to a period of fairly subdued growth ahead before picking up to 2.4 per cent in 2026, said NZIER senior economist Ting Huang.

Higher interest rates are expected to continue to dampen demand, driving a slowing in economic activity over the coming years. But over the longer term, the strong migration-led population growth would underpin activity across a range of sectors, she said.

Forecasts for household spending were revised higher for 2024.

“However, with over half of mortgages due for repricing within 12 months, households will likely become more cautious about discretionary spending as they face much higher mortgage repayments,” Huang said.

“The increased expectations for interest rates staying high for longer are likely weighing on the residential investment outlook for the longer term. On the upside, the migration-led population growth should support a recovery in retail spending and residential construction demand beyond 2025.”

The export growth outlook further declined for the years leading up to 2026, the report found.

“Despite a slight improvement in global dairy prices in recent months, food commodity prices are easing more broadly. The subdued global demand, particularly from China, continues to weigh on the export growth outlook over the coming years. The import growth outlook has been revised lower, given expectations of weaker domestic spending,” Huang said.

Forecasts for annual Consumer Price Index inflation were broadly unchanged.

The annual CPI inflation of 5.6 per cent for the September quarter pointed to a continued easing in inflation pressures in the economy, Huang said.

Inflation was expected to return to within the Reserve Bank’s 1 to 3 per cent inflation target band in the year ending March 2025.

Despite steady inflation forecasts, the outlook for interest rates has been revised higher across the forecast horizon.

This reflected increased expectations of interest rates staying high for longer, Huang said.

“While the Reserve Bank has been keeping the OCR on hold at 5.50 per cent, the hawkish tone in its November Monetary Policy Statement left the door open for further increases. With annual CPI inflation still well above the inflation target band, interest rates will need to remain restrictive for a sustained period.”

See the nzherald.co.nz at 10.45 on Thursday for full coverage of the GDP data announcement.

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.