Markedly slower economic growth that earlier expected in coming years - but much more persistent inflation than earlier envisaged. That's what economists are seeing, according to the NZIER Consensus Forecasts.
The quarterly forecasts are compiled from a survey by NZIER of financial and economic agencies. Respondents included the five biggest banks, Treasury, the Reserve Bank and NZIER itself.
NZIER's principal economist Christina Leung said the June quarter forecasts "show a downward revision to the growth outlook over the coming years, despite the stronger starting point".
"The revisions reflect expectations of weaker activity across most sectors from 2023," she said.
"Although the recovery in demand was stronger than initially expected as lockdown restrictions were relaxed, there are increasing headwinds for the New Zealand economy. These headwinds include continued global supply chain disruptions as countries continue to grapple with Covid-19, the war in Ukraine and rising interest rates.
"Households and businesses are starting to feel more downbeat, with the increased pessimism expected to flow through to reduced household spending and business investment. One positive aspect is the expected strong demand for New Zealand exports, despite growing concerns about the global growth outlook as interest rates rise around the world," Leung said.
Compared with the March consensus figures, apart from the short term, in which the GDP forecasts have gone up, there's been big falls in the estimate of future economic growth. For example, the consensus estimate of GDP growth in the year to March 2023 has now been dropped to just 2.9% from 3.6% only three months ago.
However, a 'stronger for longer' expectation is now setting in for inflation. Three months ago annual CPI inflation was forecast to fall to 3.5% by March next year (from 6.9% actually recorded in March 2022). Now its just expected to ease to 4.1% by March 2023 - still well outside the Reserve Bank's 1% to 3% target range.
Leung said the upward revision of the inflation outlook "reflects expectations that high inflation will remain persistent in the New Zealand economy".
"Capacity pressures remain acute, largely reflecting the effects of global supply chain disruptions and labour shortages. The wage growth outlook has been revised up markedly, while annual CPI inflation is expected to remain above the Reserve Bank’s inflation target band mid-point of 2% through to 2025."
And Leung also notes that with central banks here and abroad moving to tighten monetary policy in the high inflation environment, the interest rate outlook for the coming years has been revised up.
The 90-day bank bill rate is now forecast to average 3.2% in the year to March 2023, up from a forecast in the same period of just 2.6% three months ago.
Looking back at the results in the same consensus survey for a year ago show how much the thinking and environment has changed. Inflation has taken everything by storm.
In June 2021 the consensus among the economists was that annual inflation in the year to March of this year (IE 2022) would be just 2.1%, whereas it actually turned out to be 6.9%. Also in June 2021 CPI inflation was forecast to be just 1.9% by March 2023. Likewise in that survey the average 90-day bank bill rate for the year to March 2023 was forecast to be just 0.7%.
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