“The economy is being hit harder than expected a few months ago, with hopes of a soft landing disappearing in a flurry of housing market stress and rising unemployment." Photo / 123RF
“The economy is being hit harder than expected a few months ago, with hopes of a soft landing disappearing in a flurry of housing market stress and rising unemployment." Photo / 123RF
“It’s probably another 12 months before it will feel like the worst of the downturn is behind us,” says Infometrics chief forecaster Gareth Kiernan.
“Both households and businesses will need to keep a close eye on costs and spending until mid-2025. Between then and 2027, lower interest rates, less contractionary fiscal policy and the improving world economy will all contribute to an acceleration in economic growth back towards 3 [per cent per annum].”
Infometrics has published a new set of forecasts this morning. It assumes annual inflation will be back below 3 per cent by early 2025, enabling the Reserve Bank to start cutting the official cash rate from November this year from 5.5 per cent to a neutral rate of 4 per cent by the end of 2025.
That call follows new Consumers Price Index (CPI) data this week which showed the inflation rate has continued to fall.
New Zealand’s CPI increased 4 per cent in the 12 months to the March 2024 quarter, according to figures released by Stats NZ.
The 4 per cent increase followed a 4.7 per cent increase in the 12 months to the December 2023 quarter. However, economists warned details of the CPI pointed to some sticky inflation in the domestic economy.
Near-term risks remain from higher oil prices, persistent wage growth and other areas of large cost increases, such as insurance or local council rates.
Markets pushed back earlier expectations for a rate cut in August.
“The economy is being hit harder than expected a few months ago, with hopes of a soft landing disappearing in a flurry of housing market stress and rising unemployment,” said Kiernan.
“The resilience displayed by households during much of 2023 has been sorely tested by mortgage rates of over 7 per cent, and there is little sign from the Reserve Bank of any relief this year.”
Recent changes to migration policy would reinforce the effects of reducing business demand for additional workers, with the tougher entry criteria announced by the Government leading to easing migration inflows throughout the next two years, he said.
Kiwi departure numbers are forecast to settle at a new higher level, reflecting a perception of better living and working conditions in Australia that will continue to lure more people across the Tasman, he said.
Migration data on Monday showed movements in and out of New Zealand continued to run hot with record migrant arrivals being offset by record departures by New Zealand citizens.
There was an annual net migration gain of 130,900 in the year to February 2024.
But the February year provisionally saw an annual record for New Zealand citizen departures with 74,900 migrant departures, exceeding the previous record before 2023 of 72,400 in the February 2012 year.
