We are beginning 2023, and a new year signifies hope. And that is also the case with New Zealanders who, despite bearing the pressure of a high cost of living and the looming fear of recession while dealing with inflation and mayhem with their mortgages, are hopeful that the new year brings some relief.
Indian Weekender spoke to leading economists to know what they feel the year will be like for New Zealand's economy and what New Zealanders should be prepared to deal with.
‘This year won’t be easy.’
Finn Robinson, Economist, ANZ
“2023 will be the year when the full impacts of the Reserve Bank’s aggressive interest rate hikes will start to be felt by the domestic economy. We anticipate that will result in a recession, beginning in the June quarter.
“The Reserve Bank is determined to bring inflation (currently sitting at 7.2 per cent) back to its target band of 1-3 per cent, and its view is that a recession will be needed to achieve this. This sounds pretty tough, especially after what we’ve all been through over the past few years, but going easy on inflation now only risks higher interest rates (and a deeper recession) in the future. This year won’t be easy.
“We anticipate rising unemployment, continued falls in house prices and a 1.3 per cent fall in GDP between Q2 2023 and Q1 2024.
“The Reserve Bank's hawkish rhetoric certainly seems to have achieved shock value, with business confidence in this week's Q4 Quarterly Survey of Business Opinion reaching a record low, in data going back to the 1970s. Unfortunately, however, measures of expected and experienced costs and prices increased in that same survey, giving no hint that domestic inflation pressures are easing.
Q4's CPI data, released next week, will be vital for setting the scene for the February Monetary Policy Statement, where we expect another 75bp OCR hike to 5.0 per cent will be delivered.”
'If there were a global recession, the NZ economy would be in for a much harder landing.'
Jarrod Kerr, Chief Economist, Kiwibank
“It will be a challenging year as far as New Zealand's economy is concerned, as inflation pressures remain elevated. The RBNZ will remain focussed on how inflation plays out, and we predict that inflation will hopefully be controlled by the end of 2023.
"We are also hopeful that the housing market will stabilise next year.
“If the Official Cash Rate were raised as high as 5.5 per cent (from its current 4.25), it would be problematic for New Zealanders. We are optimistic that interest rates will be much lower by 2024.
“If there were a global recession, the NZ economy would be in for a much harder landing. The government must focus on our infrastructure deficit and ensure that NZ remains an attractive global destination."
‘There will be continued rises in the cost of living over 2023.’
Satish Ranchodd, Senior Economist, Westpac
"For many households in NZ, the pressure on their finances will become even more intense over the year ahead. There will be continued rises in the cost of living over 2023 and further falls in house prices.
“It is notable that nearly half of all fixed-term mortgages will come up for repricing over the next 12 months, and those borrowers will face refixing at substantially higher interest rates. That will result in some challenging financial conditions for many families. Notably, those who purchased their first home in the past couple of years could see their finances being pressed hard.
“The Reserve Bank has been hiking interest rates rapidly, and the full impact of those increases will become increasingly evident over the coming months. We expect the New Zealand economy will tip into recession in late 2023/early 2024. The key focus for the Reserve Bank needs to be getting inflation under control, but that will require a slowdown in economic growth.”
‘It is going to be a period of challenge.’
Nick Tuffley, Chief Economist, ASB
“Inflation is proving to be surprisingly stubborn and is likely to hold above 7% until mid-2023 before steadily declining. It may take until mid-2025 until inflation falls below the 3% target ceiling. The OCR will likely peak around 5.5% in the first half of 2023. The impact of this rapid tightening will be a marked slowing of the economy.
“After massive recent growth, we expect the economy to shrink by around 1% by the end of 2023. Unemployment is set to rise, mainly through continued population growth, leaving more job seekers without work, though there will also be some decline in employment.
“Recession or not, it is going to be a period of challenge for several households and businesses. Consumer spending volumes will shrink as families respond to increased costs of living and rising interest rates.
“If you have a mortgage that will refix over the next year or two, look at how your payments could change in the future, so you can gauge the potential financial impact and start to make different decisions if needed. If your business is linked closely to household spending (particularly durable goods) and the housing market, be alert for changes in customer spending habits as people adapt to their circumstances.”
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