Manufacturing rebound signals economic hope
Jarrod Kerr (pictured above), Kiwibank chief economist, has noted a promising turn in global manufacturing, marking a potential end to the recession caused by central banks' efforts to control inflation spurred by COVID-era policies.
“The good news, it appears central banks are taming the inflation beast once again,” Kerr said, highlighting a shift towards economic recovery and anticipated rate cuts.
US Fed rate cuts boost confidence
The expectation of rate cuts, especially from the US Federal Reserve, has bolstered market confidence.
“Activity is picking up from the low levels of last year,” Kerr said, with forward-looking indicators suggesting significant improvement. “2024 will be a better year than 2023, and 2025 will be better than 2024.”
RBNZ’s dovish stance and government fiscal policy
Kerr said RBNZ Governor Adrian Orr’s recent interviews hinted at a more comfortable and dovish stance ahead of the next rate decision.
“We are now in a much happier space,” Orr said, indicating a preference for managing potential downside risks to inflation.
Meanwhile, the New Zealand government’s Budget Policy Statement (BPS) outlined expectations for a weaker fiscal outlook and adjustments in operating and capital allowances.
Finance Minister Nicola Willis hinted at a tighter budget for 2024, with specific numbers on the operating allowance and a capital allowance top-up by up to $7 billion yet to be detailed.
Economic forecasts and fiscal position
The Treasury’s revised economic forecasts suggested a significant slowdown, with growth now expected to be just 0.1% for the 2023/24 fiscal year, a downgrade from previous estimates.
This adjustment, along with a lower inflation trajectory, has led to a reduction in core Crown tax revenue forecasts by nearly $14 billion, indicating a deteriorating fiscal position for the government.
Debt strategy and chocolate price spike
Adjustments to debt definitions and targets aim to strengthen New Zealand's financial health, with the government seeking to reduce net core Crown debt to below 40% of GDP. Amid these financial strategies and economic adjustments, consumers face a hike in chocolate prices next Easter, adding a cost-of-living concern to the mix, Kiwibank reported.
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