High inflation, rising interest rates pose significant challenges
New Zealand's economy further expanded in the third quarter, yet faced a slowdown due to economic pressures, including high inflation and rising interest rates, while challenges in the primary sector impacted provincial economies, according to Infometrics.
Infometrics’ September 2023 Quarterly Economic Monitor showed a provisional economic growth of 0.5% in the quarter, marking a slowdown from earlier in the year and contributing to an annual average growth rate of 1.7%.
“Jobs growth remains solid, and migration is adding additional demand into the economy,” said Brad Olsen (pictured above), chief executive and principal economist.
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Recent data from Stats NZ indicated that major urban centres like Queenstown have gained the most from recent population growth, especially with a boost in tourism. This growth has led to more jobs in areas like Marlborough, Auckland, and the West Coast, where employment increased by about 5% in the September quarter.
Despite spending being higher in dollars compared to a year ago, it is being negatively impacted by excessive inflation, and its growth is being limited as interest rates continue to rise.
“Card spending is now growing at a slower pace than annual inflation, with households having to be much more careful with their money, as budgets are squeezed and bang for buck continues to erode," Olsen said. “With inflation remaining high and mortgage rates still rising, household budgets will remain under considerable pressure into 2024.”
Spending data suggested that people in the upper North Island and lower South Island are showing increased restraint in their spending.
“Other challenges remain too, with falling construction intentions, rising unemployment, falling job ads, and increasing pressure on the primary sector,” Olsen said.
“Stronger trends in international dairy auctions have prompted a slight lift in the expected dairy pay-out, but this season is still expected to return $1.8bn less than the season before. Slaughter prices for mutton, lamb, and beef have also fallen in recent months too, some by considerable amounts.
“This lower revenue, coupled with on-farm costs rising 7.3%pa so far in 2023, is adding extensive pressure to provincial economies.”
Olsen is expecting these factors to weaken economic momentum, shaping a more subdued economic outlook.
The Infometrics Quarterly Economic Monitor provides insights into local economies. More details about the Quarterly Economic Monitor can be found here.
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