Inflation contained, economy still brittle
The New Zealand economy continues to show signs of brittleness under the strain of high interest rates, though inflation appears to be contained, ASB reported.
Core inflation is projected to drop below 3% by the second half of the year, offering some relief.
“The pressure many people have been under will start to gradually come off,” ASB Chief Economist Nick Tuffley (pictured above) said.
Mortgage and spending trends shift
Households have felt the squeeze from rising mortgage payments, with many opting for shorter-term fixed mortgages in hopes of better rates.
“Figuring out how to ‘thrive in ’25’... will also be important,” Tuffley said, highlighting that interest rates will gradually decline, lifting consumer confidence and spending.
Economic growth struggles in 2024
New Zealand’s GDP has contracted in two of the past six quarters, driven by a slowdown in housing construction and capital investment.
“We expect GDP to remain flat-to-down over the rest of 2024,” Tuffley said.
Falling interest rates are expected to spur a recovery starting in 2025.
Global outlook offers mixed signals
NZ’s key trading partners are projected to grow by 3% in 2024, with the US economy proving more resilient than expected.
However, China’s demand for New Zealand exports remains weak.
Tourism, on the other hand, continues to recover, providing a boost to the NZ economy, ASB reported.
Inflation and interest rates 0utlook
With inflation on track to stay within RBNZ’s target range, the central bank has started cutting the OCR, with further cuts expected in 2025.
“The time for OCR cuts has arrived,” said Tuffley, predicting that the rate could drop to around 3.25% by late next year.
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