New Zealand, at present, seems to be in quite a storm. New Zealanders face pressure at the pump, mayhem with their mortgages, and a crisis at the checkout. The cost-of-living crisis is only getting worse.
The government needs to take urgent action to solve their issues. Indian Weekender spoke to leading economists to share their thoughts on the current economic situation of NZ, which is undoubtedly not at its best owing to inflation, disruptions to global supply chains, increased cost of living and the enormous workforce shortage, to name a few.
‘The government needs to focus on our infrastructure deficit’
Jarrod Kerr, Chief Economist, Kiwibank
"The global economic situation is quite bleak. Outside of NZ, 90 central banks have lifted interest rates swiftly to tackle inflation. The Reserve Bank of NZ (RBNZ) was the first developed market central bank to lift inflation, starting in October 2021. One year on, RBNZ is now faced with having to take more aggressive action to get inflation back under control. Robust demand and a weakening Kiwi dollar are frustrating the inflation outlook, which explains the RBNZ hiking the cash rate by 75 bps next week. We expect the RBNZ to lift the cash rate to a peak of 5 per cent. We are optimistic that, eventually, the RBNZ will be able to lower interest rates into 2024.
"Undoubtedly, NZ is witnessing a cost-of-living crisis. On the other hand, the prices of houses are going down, which is decreasing confidence. We are forecasting weaker economic growth, and the overall outlook is awkward. The government needs to focus on our infrastructure deficit and ensure that NZ remains an attractive global destination."
‘It's going to be a tough battle to bring inflation under control’
Finn Robinson, Economist, ANZ
"The economy is going through a tough time. We got through the lockdowns of 2020 and 2021 in much better shape than anyone anticipated. But, with the benefit of hindsight, that meant the economic response to Covid-19 was too powerful at stimulating demand in the economy, and that's partly why we're now seeing high inflation squeezing households and businesses, although Russia's invasion of Ukraine and ongoing disruption to global supply chains have been key drivers of inflation as well.
"The antidote to high inflation is higher interest rates, which is undoubtedly bitter medicine to take. If the Government enters a fiscal consolidation phase, as our forecasts assume, that should help to cool inflation. But the primary responsibility for price stability lies with the RBNZ and their monetary policy. We expect the RBNZ to lift the Official Cash Rate (OCR) 75bp to 4.25 per cent at next week's November Monetary Policy Statement and another 75 basis points to 5.0 per cent in February.
"Higher interest rates will likely slow the economy down over 2023. This should help to bring surging inflation pressures back in-line with the RBNZ's 1-3 per cent target range for CPI inflation (currently running at 7.2 per cent y/y) as we head into 2024. Unfortunately, the labour market is likely to soften as the economy slows. We are forecasting the unemployment rate will rise from the current low level of 3.3 per cent to just under 5 per cent in 2024. It's going to be a tough battle to bring inflation under control."
‘NZ economic activity will likely undergo a correction in 2023’
Stephen Toplis, BNZ’S Head of Research, NZ
“NZ economic activity is likely to undergo a correction in calendar 2023 as the economy is impacted by aggressive interest rate hikes and a decline in global growth. 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.”
‘The cost-of-living crisis has leapt to the top of New Zealanders' concerns list’
Michael Gordon, Acting Chief Economist, Westpac
"The cost-of-living crisis has leapt to the top of the list of New Zealanders' concerns. The RBNZ fared better than most on this front, but the scale of today's inflation problem means that it has still found itself on the back foot.
"The second issue is that it takes time for interest rates to affect the economy fully. The average mortgage rate borrowers are paying has barely budged due to people having fixed at low rates in the past couple of years. That will change significantly over the next 6-12 months as those loans come due for refixing.
“We forecast an effective stalling of growth by the time we get into 2024. Indeed, it’s much more likely that we would be predicting an outright recession were it not for the ongoing recovery in international tourism – an important point of difference for how the NZ economy will fare in the context of a worldwide slowdown.”
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