Bank revises 0.2% contraction forecast
In the latest economic update, Kiwibank acknowledged the less-than-jolly state of New Zealand's economic growth, with the bank’s economists expecting a mere 0.2% growth in the third quarter, just shy of the Reserve Bank’s forecast 0.3% lift.
“For us, it’s a bit of a change in direction from our initial estimate of a 0.2% contraction,” said Kiwibank’s Jarrod Kerr, chief economist, Mary Jo Vergara, senior economist, and Sabrina Delgado, economist (pictured from left to right). “But let’s be clear. It has nothing to do with a stronger than expected economy, and everything to do with our record-breaking net migration.”
A staggering 120,000 migrants have entered the country in the past year, propelling the population growth to 2.7% by the end of September.
While the increased population has spurred higher demand and output, the Kiwibank economists said this growth trajectory is not indicative of a robust economy. In fact, per capita growth has remained persistently weak throughout the year, leaving the average citizen with a less than impressive economic pie.
“For now, our resurging migration may prove a saving grace in delaying, mitigating, or overall avoiding a recession. But on the ground, it’ll still feel like a recession,” the economists said.
Despite the avoidance of a technical recession, Kiwibank warned that the nation is not out of the woods yet. The current economic landscape, shaped by aggressive tightening of policy settings by the Reserve Bank, suggests below-trend growth as part of a deliberate strategy to combat inflation. The bank anticipates these stringent policies to persist until mid-2025, with the possibility of further rate hikes.
“Against such a backdrop our base case still involves NZ slipping into a recession later this year – albeit commencing a quarter later and being shallow and short-lived,” the economists said. “There’s more and more hard evidence that domestic demand is responding to restrictive monetary policy, as intended. We don’t believe further hikes to the cash rate are necessary.”
On the international front, attention turns to the upcoming US Federal Reserve meeting. Kiwibank anticipates a consensus for an unchanged cash rate, aligning with last week’s positive US payroll numbers. The robust US labour market saw an increase of 199,000 jobs, a lift in average hourly monthly earnings, and a decrease in the unemployment rate to 3.7%. However, despite the strong labour market performance, the US Consumer Price Index (CPI) is expected to reveal a fall in the annual headline inflation rate to 3.1%, with a flat monthly print anticipated on Wednesday.
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