The NZIER's latest compilation of Consensus Forecasts shows that economists have in the past three months substantially marked down their expectations of the performance of the economy in future - and particularly in three years' time.
NZIER principal economist Christina Leung said although the economy appears resilient despite the sharp rise in interest rates over the past year, expectations that interest rates will now have to go up by more than previously expected "are likely to have driven a downward revision for the later part of the projection".
The projections from the economists, which are for March years, go as far as March 2026. The forecasts have been contributed by economists from the country's five biggest banks as well as the Reserve Bank, The Treasury and NZIER itself.
Leung said as more fixed-term mortgages get repriced within the next twelve months, "the dampening effect of interest rate increases on economic activity will become more apparent over the coming years".
Compared with the consensus forecasts that were produced in September, the latest set of forecasts predict lower GDP, consumption, investment, imports and exports in three years time - but higher unemployment, (though higher wages too), higher inflation, and higher interest rates.
GDP growth for the year to March 2026 is now forecast to be just 1.6%, compared with a forecast in September that it would be 2.2%. In November, of course, the RBNZ produced new forecasts that projected four negative quarters of GDP growth starting from the middle of next year.
In terms of CPI inflation, the economists are now picking this to be 2.2% by March 2026 - that's just slightly higher than they picked in September (2.1%) - but it would still put inflation above the RBNZ's explicitly targeted figure (which is 2%) in over three years time. Annual inflation as of September 2022 was running at 7.2%.
As of September 2022 unemployment was just 3.3%. Economists now see this rising to be 5.1% by March 2026 (their previous forecast made in September was for 4.8% unemployment by March 2026).
NZIER's Leung notes that household consumption forecasts have been revised down beyond 2024.
"The decline in sales of durable goods and an increase in the household saving ratio over the past year already indicate signs of reduced appetite for spending on big-ticket items due to increased living costs and interest rates.
"Forecasts for residential investment have been revised further down. This reflects expectations of weaker housing market activity and construction demand for the coming years," she says.
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Compared with the consensus forecasts that were produced in September, the latest set of forecasts predict lower GDP, consumption, investment, imports and exports in three years time - but higher unemployment, (though higher wages too), higher inflation, and higher interest rates.
though higher wages too - enough to reverse the compound losses employees suffered in the US?
I had this out with Luke Malpass the other day (private correspondence) over his fear-inducing article stating '20% of households will struggle. He later corrected to 20% of those with mortgages - when I pointed out only 32% of the population even has a mortgage, and 2/3 of those pay less than 1/2 the average rent. 20% of those with mortgages is only ~6% of households.
It is true, some people with mortgages are going be spending significantly less - but those some people are a tiny fraction of the population. We don't really know since the RBNZ stopped reporting debt concentration.
Though - they could be punching well above their weight in the economy if they're heavily invested in housing - tying up all the builders and materials others want for their own building projects.
Tiny percentage? Roughly 80% are living pay to pay.
I know many people in the demographics you talk of (Tiny mortgages, good income) but the reality is "lifestyle creep" or whatever you want to call it means that they are looking at cutting back. Ultimately, any increase in mortgages is pulling that money away from something else.
Preliminary retail talk is also saying that this Christmas is a lot less/slower than same time previous years. Which would back up the underlying sentiment.
I think there will be a lot more strife than many predict. "It won't happen overnight, but it will happen."
I’d say it will be 4.5-5% by end of 2023.
Lots of employment hangs off the residential building sector beyond construction employment - real estate, marketing, trades, architecture, planning and surveying, civil engineering.
And as work drops in these sectors, along with rising mortgage rates, there will be less discretionary spend in sectors such as hospo and retail so falling employment in those areas too.
The whole property sector is not down on its knees because of new construction slowdown
The gubmint still have not done their HH upgrades and they are building flat tack, more so in election year imo. And please dont forget about positive net migration as well as tourism. This is what I was referring to by sectors that are ramping up.
The forecasts driving these predictions could look significantly different with a National-ACT coalition swearing into government next year.
Both Luxon and Seymour have commitments to repeal migration and speculation "hurdles". Those policy moves might drive long-term prosperity and productivity into the ground, but they come with the promise of propping up economic growth in the short to medium term.
This is what gets me. So many of ACT and National's core voters don't want immigration, but I'll bet you the house that their policy makers have a small sample size they're taking advice from (I'll bet James McDowall made up his own immigration policy to suit himself then convinced the caucus that it's what voters want). Many people will vote for them for other policies while at the same time despairing that with the policies they wanted e.g. low immigration to keep rents down, get given the finger.
"Compared with the consensus forecasts that were produced in September, the latest set of forecasts predict lower GDP, consumption, investment, imports and exports in three years time - but higher unemployment, (though higher wages too), higher inflation, and higher interest rates"
or as this has been suggested by economists it quite possibly could be
Compared with the consensus forecasts that were produced in September, the latest set of forecasts COULD predict HIGHER GDP, consumption, investment, imports and exports in three years time - but LOWER unemployment, (though higher wages too), LOWER inflation, and LOWER interest rates.
They really do not have any track record that would merit any belief in what they suggest and reality is, its a guess!
If I was a betting man… I reckon National are going to do a Uturn on the interest deductibility. It makes no sense to reverse it, not unless they instal a DTI at the same time. It’s not just about pumping immigration, it’s about stemming the outflow, and one good thing about the interest deductibility is that it limits investors (competition for FHB) from the market. At best I think they will stick with a 50% deductibility… no way are they going back to a housing lolly scramble.. no way
I agree, they already appear to have u-turned on scrapping the 39% top tax rate. I think what they've realised is that they need to be near centre, not pandering to those much to the right of centre. They also want to keep credibility as the part of fiscal responsibility, and each of these taxes that they want to cut/remove cost real money which they need to make up elsewhere, which is easier said than done.
Mmmmm I have been spreadsheeting, if they keep the non deductibility of interest on Res Investment its going to be ARMAGEDDON , have you looked at the numbers we would be looking at a 60% off peak before investors return. Look personally I have no investments so I will be able to buy at the bottom, possibly not will focus on more commercial stuff.... or horse breeding, mushroom farming... anything that has a reasonable playing field.
I think you’re giving the general population too much credit. The vast majority of citizens wouldn’t even know what the interest deductibility framework means. National with Act will remove it, under the guise that it will lower rents as more rental stock will come on to the market.
To be honest, it is just too early to call. It is obvious that the housing market will continue to crash/decline as long as the OCR remains above 4%. Most experts, seem to agree that the earliest that the OCR would start to come down towards 3% (due to inflation having been crushed) would be 2024.
But to start calling positives, rebounds, and the like just seems very premature. Until inflation has 3 quarters of trending in the right direction, then I would suggest that all bets are off. And even my prediction is plucked out of thin air.
Once the initial economic dip from job losses, and property developers etc. going belly up, rebounds then we could be on the road to a healthy GDP recovery. Especially if people start investing in anything other than land/housing.
mmm, have you ever tried asking a NZ retail bank to loan money for anything other than land housing..... fine so long as you have a house or land to lend against..... hard to see anything replacing residential lending , whats it at now couple of hundred billion in NZ....
The number of available auckland rentals has dropped suddenly. Must be something happening.
As for int ded and investors never returning to the existing house market what crap.
Investors will return in numbers when they decide there are either capital or revenue returns
And investors will return in numbers when govt or rbnz decide its gone too far and they change the investment regime
Now if the drop in rentals keeps occurring then all bets are off. As I see it.
Mmmmmm I will bookmark your post as below, two When's and an If.
The number of available auckland rentals has dropped suddenly. Must be something happening.
As for int ded and investors never returning to the existing house market what crap.
Investors will return in numbers when they decide there are either capital or revenue returns
And investors will return in numbers when govt or rbnz decide its gone too far and they change the investment regime
Now if the drop in rentals keeps occurring then all bets are off. As I see it.
Reinz HPI out this week. How much have houses dropped this time. I know you have inside knowledge but maybe not allowed to spill.
I see that JA is hopping around making with exec decisions over immigration. Previously it was over lockdowns and the Orange light. Whenever her ratings drop she gets busy, so this year 2023 will be awesome for its U turns
I saw this listing you may be interested in: 1969 Alfa Romeo GTV 1750 https://www.trademe.co.nz/3880351414
Your thing ITG? ..listing closes soon
That would be the record of all records of incoming legal people in the world. All available houses will sold/tenanted by Feb. Be Quick.
8% anualised gain in a year???? we buckled like hell at 1- 2%
Is this actually you Tony Alexander?? ( Mr solid 5% gains in 2022.....)
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