New Zealand’s economy: on the edge

ANZ Research expects a contraction in the New Zealand economy over the first half of 2023. If international tourism and education don’t pick up as quickly forecast, the whole economy could easily slip into recession.

“A strong recovery in net exports will hopefully see New Zealand avoid a recession.”

The Reserve Bank of New Zealand is dealing with the low likelihood of a sharp supply-side recovery. ANZ Research has downgraded our outlook for net migration. Given we’ve also seen very strong wage growth, the task of taming inflation hasn’t got any easier.

Here’s the story we see in charts and the challenge facing regulators:

The OCR will go as high as it needs to...

Our OCR forecast peaks at 4 per cent but 7 per cent year on year wage growth means it may need to go higher.

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...to align supply with demand

The output gap shows there is no capacity to meet demand without inflation lifting. That needs to change.

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Net migrant outflows mean the labour supply problem won’t be resolved quickly

Net migration assumed to stay negative for longer

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The domestic economy is expected to contract in 2023, led by investment

Residential investment and house prices

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A strong recovery in net exports will hopefully see NZ avoid recession

Real services exports (eg. tourism and education)

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But unemployment needs to rise for inflation to slow

Consumer Price Inflation outlook

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Miles Workman is a senior economist at ANZ New Zealand