Economic challenges to persist
The New Zealand economy is set to face challenging conditions over the next 12 months, according to Infometrics’ latest forecasts.
Businesses are exhibiting increased caution around investment and hiring due to weakening demand, leading to reduced job and income security.
Rising unemployment and consumer caution
The unemployment rate is projected to rise from the current 4.3% to 5.3% by mid-2025, further limiting consumer spending.
“Job losses are looking more likely in parts of the economy where demand is falling away, such as retail and hospitality, construction, and some areas of professional services,” said Gareth Kiernan (pictured above), Infometrics chief forecaster.
“Consumers will look to shore up their financial position by further reining in discretionary spending through into 2025.”
Inflation and interest rates
Inflation is expected to return within the Reserve Bank’s 1-3% target band by the end of this year. However, despite recent dovish statements, Infometrics said the bank's approach was not forward-looking enough.
“There will be a sense of relief from mortgage holders when interest rates are actually cut by the Reserve Bank, as opposed to the market speculation since early 2023 of the possible timing,” Kiernan said.
Infometrics predicts the first rate cut may occur in February 2025, but the full economic benefits will take up to 18 months to materialise.
Fiscal policy and international factors
With a less contractionary government budget than expected, fiscal policy will need to remain tight to restore government accounts to surplus.
Globally, while there are some positive signs, issues like China’s economic struggles and ongoing conflicts present challenges for exporters.
“We are forecasting year-end GDP growth of just 1.5% in 2025 and 2.5% by the end of 2026,” Kiernan said. “That outlook results in a 1.2% reduction in GDP per capita between 2022 and 2026, meaning that we will all be worse off than four years ago.”
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