Weekend Herald

ASB forecast: Interest rises coming closer


Slowing house prices, inflation pressure and sooner-than-expected rises in interest rates will be prominent in the near-term economic outlook, says ASB Bank.

In its latest quarterly forecasts the bank said there were growing pains ahead as the economy continued to recover from the pandemic.

Chief economist Nick Tuffley said the vaccine rollout around the world was pointing to above-average growth this year.

He said the transtasma­n bubble, global commodity demand and the rebound in domestic spending had all been positive for the economy, which had out-performed many other developed economies.

But challenges loomed on housing and inflation.

“The growing headwinds that have picked up over the past year, including the government tax changes, will slow investor demand and we may also start to see some natural slowdown with house prices very high relative to incomes, and mortgage rates not likely to fall any lower,” Tuffley said.

ASB was picking the growth in house prices to more than halve to 10 per cent by the end of the year, and halve again to 5 per cent by the end of 2022.

He said cost pressures were also rising for various reasons, ranging from supply chain problems, labour shortages and higher wages, to the supply of raw materials.

“Cost pressures have begun to ramp up significan­tly in NZ, and these are expected to be passed on to consumers over the coming few months.”

ASB forecast inflation to reach 3 per cent by the end of the year. Tuffley said that would result in the Reserve Bank moving more quickly than expected to raise its official cash rate, with ASB picking the first move in May next year, which would add more downward pressure on house prices.

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