Source: ASB
ASB’s latest Economic Forecast Update signals a cautiously optimistic outlook for New Zealand, as the country navigates a steady – if uneven – recovery from the past few years’ economic challenges. While the June quarter saw a sharp contraction, recent data point to stabilising conditions and the early signs of a turnaround.
The latest ASB Quarterly Economic Forecast report, released today, highlights that while the recovery is taking longer than hoped, resilient export performance and improving consumer spending are providing a strong foundation for cautious optimism. The housing and labour markets continue to face headwinds, but lower interest rates and easing inflation are expected to support a gradual lift in activity over the coming year.
“The road to recovery is proving bumpy, but there are encouraging signs that New Zealand is finding its footing,” says Chief Economist Nick Tuffley. “While the June quarter took a hit, we’re seeing the seeds of a domestically driven recovery, with lower interest rates and resilient export performance providing a foundation for growth.”
Economic Outlook
ASB expects the Reserve Bank to deliver a 50-basis point cut to the Official Cash Rate (OCR) in October, with a further 25bp cut likely in November – potentially bringing the OCR down to 2.25% before Christmas. This is expected to provide relief for mortgage holders and support a gradual recovery in house prices.
“The economy feels like it needs a bit of a circuit-breaker to overcome uncertainty and create courage for households to spend and businesses to invest,” says Nick. “The onus is now on the Reserve Bank to work to overcome the effects of its post-COVID tightening cycle.
“However, a structurally higher cost environment, a lacklustre wealth effect from a sluggish housing market, and a lower spending propensity given the erosion of savings buffers make it harder to convince us that this will be a ‘rockstar’ recovery – perhaps more indie pop/soft rock star,” says Nick.
Sector Highlights
- Primary exports: Dairy, beef, and kiwifruit continue to perform strongly, supporting rural balance sheets and helping buffer the wider economy.
- Consumer spending: Volumes are recovering, especially for durable goods, as lower mortgage rates begin to flow through household budgets.
- Housing market: Demand is picking up, but excess supply and cautious buyers mean price growth remains modest.
- Labour market: Unemployment is at a five-year high, with wage growth subdued and cost pressures easing for households.
Looking ahead
New Zealand’s path to recovery is likely to remain bumpy, with progress shaped by ongoing changes in global trade, domestic demand, and the housing and labour markets. While stabilisation in key sectors and the prospect of lower interest rates offer reasons for cautious optimism, challenges and economic ‘potholes’ are no doubt expected along the way.
The coming year will be crucial in determining whether these early signs of improvement can develop into sustained growth and renewed confidence for households and businesses as the country continues to navigate the speed bumps of recovery.
The latest ASB Quarterly Economic Forecast, along with other recent ASB reports covering a range of commentary, can be accessed at the ASB Economic Insights page: https://www.asb.co.nz/documents/economic-insights.html
