Infometrics’ chief forecaster Gareth Kiernan says the economy will continue to grow even as high interest rates bring down inflation, a situation often referred to as a ‘soft landing’.
The outlook was still challenging, with economic stress still being felt, but inflation was trending down and economic growth was continuing, albeit slowly.
“There is a sense that the rebalancing of the New Zealand economy after the pandemic could have been a lot more harrowing than what we are currently experiencing,” he said.
In a note shared with media on Thursday, Kiernan said economic activity was likely to grow 0.9% next year — up one percentage point from his previous predictions.
“Part of the economy’s resilience is due to the record high net migration inflows that are currently occurring,” he said.
An additional 110,000 people had entered the country over the past year and filled job vacancies and skill shortages. This had boosted aggregate demand even as household budgets were squeezed.
Earlier this week, Statistics NZ’s quarterly consumer price index data showed inflation had slowed from 6% to 5.6% in the three months ended September.
This was the lowest inflation rate in two years despite some one-off effects, such as local rate increase, boosting the price index during the quarter.
Kiernan said this suggested the Reserve Bank’s policy settings were working as hoped and the central bank was unlikely to need to raise interest rates any higher.
Price increases are expected to stall from here and allow the annual inflation rate to reset within the target range, between 1% and 3%, by next September.
There was some risk that inflation stuck around longer than expected because of higher oil prices, wage pressures, or a recovery in the housing market.
The incoming National government’s plan to relax tax rules for property investors was “set to boost buyer demand” for housing. However, mortgage rates are likely to stay above 6% next year and debt-servicing costs will keep a lid on house prices for now.
Economic weakness in China has been weighing on export prices and will cause provincial regions with agriculturally based economies to struggle over the next 18-months.
Core inflation cooling
The Reserve Bank’s core inflation models all dropped in the September quarter, including the important sectoral factors model which fell to 5.2% after being stuck at 5.7% for nine months.
There are various estimates for core inflation, but the sectoral factors model is a key measure of underlying inflation which measures movements in both tradable and non-tradable prices.
Mark Smith, a senior economist at ASB, said these core inflation rates easing meant that underlying inflation was cooling.
“A moderating underlying inflation pulse will encourage the RBNZ to ‘look through’ much of the third-quarter quarterly lift in inflation, with inflation still on track to fall below 3% by the end of 2024”.
Stephen Toplis, head of research at BNZ, said you could see monetary policy at work in the retail sector where prices were “clearly under pressure” with demand decreasing and inventories building up.
“There were outright declines in the quarter for the prices of footwear, furniture, furnishings and flooring, household textiles, household appliances, and glassware, tableware and household utensils”.
51 Comments
Real GDP per capital growth will be even more dire than the official data shows. Even on the watered down Aussie data, it's negative yoy and in near-term intervals. Of course migration numbers are off the richter.
This is not smart economic management. It's desperation.
We don’t know yet if it will be negative, assuming a 0.9% growth rate next year (his forecast). Will depend on net migration levels next year, which are likely to be much lower than this year.
But assuming low- moderate immigration, it will be weak and yes may be negative
We don’t know yet if it will be negative, assuming a 0.9% growth rate next year (his forecast)
What we do know is probability from the past. So you can take a time series of data that includes GDP growth rates, CPI inflation rates, and population growth and come to your own conclusions.
However, I would say that this is a very simplistic approach and doesn't account for the economic context. The current climate is unlike any other in history.
Agree. On top that, it's becoming more difficult to find a job due to the combination of increased labor supply and weaker demand. We're going to see the employment situation deteriorate further from here until monetary settings change and wider economic demand improves.
For a country who's only economical achievement was to sell 11 bags of milkpowder to China in stead of 10 we are doing quiet well. No diversification at all in our exports and barely any innovations produced last decades. No Novo Nordisk (Danmark) or ASML (Netherlands) like businesses developped over here. Just more people who are not creating more GDP/capita but only increase our government spending/capita.
There are still agricultural innovations at play although not all will be large-scale in terms off export crops. I can think of the development of the hunny Nectarine as one, NZ's sweetest variety, and the ever developing hop industry with 2 new varieties trademarked and released in the last 4-5years, much for export.
Until we change our tax system to promote investment in productive assets NZ Inc. will go nowhere.
Currently our useless tax system promotes "investment" in existing assets rather than building new assets that produce a return above %5. (I am of course, referring to the absence of a CGT and foolish "investors" that buy residential property.)
Have I mentioned Kiwis aren't that bright?
"Foolish 'investors' that buy residential property"?
What's foolish about it? I've owned lots of properties, residential and industrial and I've made a lot of money. There's often amateurish and uninformed criticism of property investment, but I always say if it's so easy, borrow a million and have a go.
"Your odd win here and there."
I've owned about 15 properties and never lost on one yet. And had many years of rent out of them. I owned an industrial property in Henderson for 35 years. I'm just about to build a new house, I got a huge discount on the land, it's been a great time to look around as Comrade Ardern's left-wing lackeys sent NZ into economic ruin.
Yes I do. What did I miss out on?
A few stock market crashes, plunging Equiticorp or Brierley's shares, South Canterbury Finance or Bridgecorp? Or maybe fixed interest, as the prices plunge as interest rates spike. Who can forget South Canterbury Finance Mr. "nice guy" Allan Hubbard driving around in his vintage VW before the whole lot imploded?
One could argue that investing in existing property is more likely to lead to obtaining locations that will continue to become more desirable over time as the population increases for those with longer term vision. For others it is the opportunity to milk high rents while the house degrades util they bowl it and build multi-story units to rent to MSD at exorbitant prices while the opportunity exists. If only there was incentive to lessen the desire for this, as those who want to will do it so long as the numbers stack up, and for those who purchased pre-2020 which was most, they do.
What's not bright is bashing the "tax system must change" drum. Innovation has been the mantra of NZs "brightest" since Britain joined the EEC in the seventies. Since then innovation has been sold off to any foreigner waving a non NZ peso note. Look at the share market. What a dire collection of tired uninteresting corporates. Perhaps we should nationalise our businesses? Run a command economy forbidding foreign buyups? Of course that would trash our FTAs leaving even milk powder an impossible sell.
Just more people who are not creating more GDP/capita but only increase our government spending/capita.
Private consumption has more impact on GDP. It's all about the composition. That is why migration and the wealth effect are crucial.
GDP per capita is just a way to measure the fraud IMO. It's a pity our media are not more competent and our public not more discerning.
Seems fairly common for tech companies to slowly drift towards Australia, too. Xero no longer listed on the NZX, primary listing on the ASX. Home-grown Plexure (now Task) are leaving the NZX in the next few weeks - the ASX will reap the rewards of their growth now they are profitable. Same story for Harmoney, they left a year ago.
I'm sure there are more I am forgetting.
They only listed in April 2021 - right at the peak of covid crazy. Lots of companies are down 80-90% from their covid peak. Especially the unprofitable, high growth ones. But even the profitable ones have been slammed - take DGL, another one to have left the NZX, its down from $4.31 to 84c.
Mr. Micawber placed his I.O.U. in the hands of Traddles, and said he wished him well in every relation of life. I am persuaded, not only that this was quite the same to Mr. Micawber as paying the money, but that Traddles himself hardly knew the difference until he had time to think about it.
bit like going to the dentist and its only three teeth coming our not 4 or 5 -- may be better than it could be- but still a heap of pain coming our way
all of this does not hide the real facts - that ordinary people - and i include most of our professions in that have been, are and will continue to do it extremely hard and its getting worse daily so the fact that the degree is SLOWING down -- should not detract from the fact that it is getting HARDER daily for most people and will continue to get HARDER for a longer period of time! -
rent rises, mortgage rises, rate rises, utility costs rising, insurance rising, fuel rising, food rising, goods and services rising -- lets not bother with entertainment as few can afford it - for most families there wont be a week go buy without some form of increased cost
soft landing my arse!
No..on average its getting better!!
We import people from poverty wrecked countries, they come here and are better off.
Another million or more, perhaps a few from Ukraine and Palestine and our great leaders, economist and central planners will be able to show how on average we are all better off than we have ever been.
I mean where do you even start?!?!
First, infometrics (and Treasury / RBNZ) are forecasting unemployment to increase to around 5% in the next 12 months - an increase of at least 1.4 percentage points. I have only looked back to 1980, but in that time we have never seen unemployment increase that much without going into a technical recession. And, the country will definitely feel like it is in recession with an extra 50,000 people on the dole.
So, maybe those unemployment forecasts are way off - or immigration will see us through? Well, it is true that '110,000 people [net] have entered the country over the past year and filled job vacancies'... but in the last 6 months actual job creation (net increase in jobs) has been around 15,000. Meanwhile, people claiming jobseeker benefits (work ready) is increasing steadily - up 10,000 in the last 6 months and ramping up at around 800 per week (net).
Every other MSD benefit indicator is flashing red - e.g. claims for accommodation supplement are already trending well above the forecasts that MSD and Treasury made in the pre-election economic update a month or so ago!
I won't start a debate about the claim that higher interest rates / monetary policy are a major causal factor in slowing inflation down (higher rates will keep inflation higher for longer). But, the idea that '[inward migration has] boosted aggregate demand even as household budgets were squeezed' is pure reckonomics - unless they are talking about rent! What data shows that demand for goods and services is holding up? Once you adjust spending for higher prices every measure shows that demand has been falling away for many months - we are buying 10% less food for example. Even the ghouls at ANZ have got that one right.
Infometrics are just an extended part of the hugely bloated Wellington bureaucracy. I take their views with a grain of salt. I am skeptical of their ‘independence’ - maybe they think they are independent, but subconsciously???
Don’t think it does their bottomline much good to rock the boat too much (in terms of government forecasts and policy)
What a bliss for low-skilled people to come to NZ and work in menial jobs which will taper off shortly with demand, adding to the benefit list while passing through accommodation supplements from the government to the landlords, further entrenching the divide we currently see and putting more and more people financially further behind in reaching their long term financial goals.
It's a concern for the boomers who own equities.
My water cooler mates respond with "at least we're not Japan". They're unaware that the Nikkei 225 is up 21% YTD, even though I told them about what Buffet was doing with the Japanese trading companies. NZ and Aussie don't have any companies like this.
I'm inclined to agree. It would help me to see some analysis of the quarterly and annual movements in the NZX50, ASX, DOW... do they match up to the daily sentiment shifts we get? And I'm always interested to see if (kiwisaver) growth and conservative funds etc are outperforming the indexes, or just as lost as the rest of us.
I can't see us driving the next big tech wave, which leaves ag and tourism as long as we can get oil and ships and planes to burn it. What would a "got going" NZ economy look like?
Are you talking about cheap finance bidding up land prices while everything else goes to hell?
I've heard about those 'tech waves' for decades.
Wasn't Aunty Helen going to make NZ the world leader in information technology? How about we do a bit of oil drilling, get agriculture and tourism going again, because if we don't the future for this country is pretty grim.
Granny is onto it
https://www.nzherald.co.nz/business/market-close-nz-stocks-buckle-sink-…
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