Tāmaki Makaurau – New Zealanders urged to prepare for sustained period of economic slowdown.
OCR expected to peak at 5.5% by mid-2023 as RBNZ grapples with stubborn inflation.
Consumer spending to fall as household budgets squeezed further.
International tourism rebuild starting but could be hampered by worker shortage. ASB says prepare for a challenging 2023.
ASB chief economist Nick Tuffley says with high inflation and interest rates expected to pull New Zealand’s economy into recession for much of 2023.
Aotearoa’s economy will contract one percent by the end of 2023, driven by falling consumer spending and declining building activity, as construction struggles with surging costs in a cooling housing market.
“Regardless of whether we actually dip into a recession or not, the New Zealand economy’s going nowhere for a period of time,” Tuffley says.
Inflation is proving stubbornly high, and we don’t expect it will fall below the Reserve Bank’s three percent target ceiling until mid-2025. Non-tradable inflation, which is linked to domestic wage growth, is pushing up businesses’ operating costs and may continue to accelerate until the middle of 2023.
ASB expects the Reserve Bank to press on with increases to the official cash rate, which should peak at 5.5 percent in mid-2023 and remain high for a year.
A marked fall in household spending, driven by the impact of higher interest rates, cost of living increases and a weaker housing market are expected.
The most exposed sector to the downturn is household durables. Discretionary purchases such as cars, appliances and furniture are likely to be most affected after a retail boom in recent years.
The Christmas mood is likely to be downbeat, spending patterns will change, and businesses in these exposed sectors need to be ready to adapt to changing customer needs, ASB says.