Contrasting monetary policies shape outcomes
New Zealand and Australia are experiencing diverging economic conditions due to different approaches to monetary policy, new analysis from Westpac showed.
“The RBNZ has begun cutting the OCR... while in contrast, we’ve pushed back our expectations for the start of rate cuts from the RBA from November to February,” said Kelly Eckhold (pictured above), chief economist at Westpac NZ.
New Zealand’s aggressive rate hikes have led to a sharper economic slowdown, while Australia’s more gradual approach has maintained a resilient labour market.
See LinkedIn post here.
Inflation falling faster in New Zealand
Both countries are seeing inflation ease, but the downtrend is more pronounced in New Zealand.
“Headline inflation is on course to fall below 3% in the September quarter,” Eckhold said, as RBNZ’s tighter monetary stance starts to take effect.
In Australia, core inflation is expected to stay above 3% until the second half of 2025, partly due to the country’s softer approach to monetary tightening.
Economic growth and labour market contrasts
New Zealand is facing a shallow but prolonged recession, with GDP contracting 0.5% over the past 18 months, while Australia’s economy remains in positive territory.
“The Australian economy is expected to continue outperforming New Zealand over the coming year,” Eckhold said, highlighting Australia’s stronger trade position and focus on hard commodities.
Housing market and fiscal strength differences
Australia’s housing market has been more resilient, with house prices up 8% over the past year, compared to New Zealand’s flat price growth.
Eckhold also stressed Australia’s stronger fiscal position.
“Australia’s fiscal position is much stronger... with net debt projected to remain below 22% of GDP,” giving it an edge over New Zealand in long-term growth potential, the Westpac NZ economist said.
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
