This driven by the 0.3% drop in GDP over the September quarter
The latest NZIER Consensus Forecasts from NZIER has reported a significant revision in New Zealand’s economic growth, with GDP expected to rise by just 0.5% in the year ending March 2024 and 0.8% in 2025.
“This weaker outlook for GDP growth has been driven by the 0.3% decline in GDP over the September quarter of 2023,” said Ting Huang (pictured above), senior economist at NZIER, pointing to the challenges posed by higher interest rates.
Diminished expectations for household spending
The near-term forecast showed weak household spending growth, revised to below 1% for both 2024 and 2025, reflecting a continuation of weak retail sales and the impact of rising mortgage repayments. Approximately 56% of mortgages due for repricing within the next 12 months may further slow spending.
Residential investment faces setbacks
The outlook for residential investment in 2025 has also been adjusted downwards.
“Both dwelling consent issuance and the NZIER QSBO’s architects’ work in their own office point to a slowing in the pipeline of residential construction,” Huang said, though migration-led population growth is anticipated to drive recovery beyond 2025.
Exports to recover as global conditions improve
While export growth forecasts for 2024 have softened, expectations for 2025 are brighter, with improved global economic conditions poised to enhance demand for New Zealand’s exports. Conversely, import growth predictions have been lowered, mirroring the anticipated drop in domestic spending, according to the NZIER report.
New Zealand dollar gains strength
The NZD is forecasted to appreciate throughout the projection period, supported by the Reserve Bank’s commitment to maintaining a restrictive OCR.
“Expectations for New Zealand interest rates staying high for a sustained period have underpinned the yield attractiveness of the NZD,” Huang said.
Inflation and interest rates stable
The inflation outlook remains largely unchanged, with CPI inflation predicted to fall to 2.4% in 2025, aligning with RBNZ’s target. This expectation is backed by a decrease in the number of firms reporting higher costs and price increases.
RBNZ’s stance on keeping the OCR at 5.5% reflects a broader strategy to curb inflation, indicating that interest rates are likely to stay restrictive for the foreseeable future.
Labour market adjustments
Anticipations for wage growth have been moderated for the coming years, driven by a reduction in labour shortages. However, the unemployment rate forecast remains relatively stable, with expectations of a slight increase in the years ahead, NZIER said.
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