New Zealand Outlook: Brake Point

While it’s going to hurt some households more than others, ANZ is hopeful this slowdown will turn the tide on domestic inflation and set the broader economy on a more sustainable path over the longer run.

“We’re hopeful this slowdown will turn the tide on domestic inflation.”

Interest rates could easily go higher or lower than we are forecasting but we think risks are broadly balanced around ANZ Research’s recently updated Overnight Cash Rate (OCR) call for a peak of 5.25 per cent.

But no doubt 2023 has a few surprises waiting for us…. This time last year we were forecasting a peak OCR of 3 per cent and as we go to print the OCR is at 4.25 per cent and still rising!

The story so far …

Recession is looming in New Zealand … slower domestic demand due to higher interest rates is expected to more than offset the net exports recovery brought about by the tourism rebound and weaker imports.

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Labour demand is moderating … just as imported labour supply appears to be picking up at pace.

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The external imbalance will improve … but a weaker domestic economy is part of the cure.

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Consumers will have a lot to say about the state of broad economic momentum … will they finally follow through and reduce their spending?

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A higher unemployment rate and slower growth in labour costs are expected … which will help guide non-tradables inflation lower.

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Risks around our OCR call feel balanced … but in this unusual environment it’s not hard to come up with scenarios where we’re (very) wrong. The impact of rate hikes on activity and the stickiness of inflation are both uncertain.

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Miles Workman is Senior Economist at ANZ Institutional

Charts source: Stats NZ, Roy Morgan, MBIE, RBNZ, Macrobond, ANZ Research

This is not personal advice nor financial advice about any product or service. The opinions and research contained in this document are provided for information only, are intended to be general in nature and do not take into account your financial situation or goals.