Economists expect recession next year
AUCKLAND: New Zealand will slip into recession next year, according to BNZ’s economics team.
In its latest outlook report, New BNZ forecasts a bounce in growth for the second quarter of this year, which would see us avoid recession in 2022.
But it expects a ‘‘modest contraction’’ in growth for the second and third quarters next year ‘‘as the economy is impacted by aggressive interest rate hikes and a moderation in global growth’’.
The good news was ‘‘the correction would help the RBNZ achieve its objectives of 2% inflation’’.
BNZ forecast CPI inflation to fall to an annual rate of 3.7% by mid2023 (from its current peak at 7.3%).
‘‘The headline annual CPI inflation rate has peaked at 7.3%,’’ head of research Stephen Toplis said.
‘‘The combination of falling global commodity prices and a softening housing market will meaningfully impact the CPI from [the third quarter] onwards.’’
The initial drop would be marked, he said.
‘‘We are forecasting it to dip under 4% over the next year. But we forecast it will then take a further year for annual inflation to fall to the midpoint of the RBNZ’s target band.’’
BNZ saw the official cash rate going to 4 % but only forecast unemployment to rise slightly — to 3.9% by June next year.
The unemployment rate is 3.3% at present.
The report raised specific concerns about a slowdown in the economy of our largest trading partner, China.
But the most pressing issues were domestic.
‘‘We think the biggest economic adjustments will occur in durables goods spending and residential construction,’’ Mr Toplis said.
‘‘Rising tourism and relative strength in services’ spending will be insufficient to fully offset these negatives.’’ education did not improve as quickly as hoped.
Westpac acting chief economist Michael Gordon also sounded a note of caution about the recovery given the constraints on growth created by the tight labour market.
However, there were early signs that demand was softening, some of the international price shocks of recent years
BNZ head of research Stephen Toplis
Despite the technical recession call, Mr Toplis struck an optimistic tone in his wider view of the economic cycle.
‘‘We are hopeful any correction will be relatively orderly as we enter this phase with solid business, household, banking sector and government balance sheets; a strong labour market; and the ability for the RBNZ to ease aggressively if required.’’
This month, ANZ and Westpac economics teams released quarterly outlooks forecasting that New Zealand would avoid technical recession — two quarters of economic contraction.
But they saw similar trends as what BNZ did across the next 12 months, despite slightly different numbers.
ANZ chief economist Sharon Zollner warned there was still a risk of recession early next year if international tourism and
❛ We are forecasting it to dip under 4% over the next year. But we forecast it will then take a further year for annual inflation to fall to the midpoint of the RBNZ’s target band
were now receding and longerterm expectations of inflation remained under control, he said.
‘‘This suggests that inflation is on track to return to the Reserve Bank’s target in the coming years, without the kind of shock treatment that was needed around the world in the 1970s and 1980s.
‘‘International visitor numbers have been climbing rapidly since the border with Australia reopened earlier this year.
‘‘However, like other parts of the economy, the hospitality sector is struggling with shortages of staff. Consequently, many service providers in the sector are still being forced to operate below prepandemic levels, even as demand has picked up.’’ —