Economic growth is looking weak and the economy is flirting with recession, according to ASB's latest Quarterly Economic Forecast.
"New Zealanders are set to face a tough year as the continued pressures of inflation, housing and a tight labour market combine," the report said.
The report's key finding include:
- Inflation has likely peaked but it could be 2024 before it drops back below 3%.
- House prices are expected to continue to fall through to mid-2023.
- The Official Cash Rate is expected to increase to a peak of 4% by year end before starting to fall in 2024.
"Inflation likely hit its peak midway through this year, but it's going to take a while to get down to a sensible level so there's going to be a long tail," ASB Chief Economist Nick Tuffley said.
"The Reserve Bank has been reacting to this by rapidly increasing the Official Cash Rate, which we expect to reach 4% by the end of this year and remain high throughout 2023," he said.
"Many households with mortgages are going to feel added mortgage servicing pressure over the next year.
"We still have over half of fixed rate mortgages rolling over in the next 12 months, so there's going to be people progressively feeling the impact of that even into mid-next year.
"Eventually though, interest rates are likely to come down but we don't envisage that until sometime in 2024," Tuffley said.
The report also said that housing construction is expected to contract gradually amidst declining prices, rising interest rates, higher costs and a steady closing of the past supply shortfall.
Tuffley also said the labour market was proving to be a double-edged sword.
"On the one hand, we're seeing continued strong wage growth which will outpace inflation next year and lift people's purchasing power, but on the other hand, this is going to be a real challenge for employers when it comes to finding and retaining people," he said.
"Employers will need to start thinking longer term about how they cope with those challenges because we don't see much relief anytime soon.
"The message is it's going to be pretty challenging this year and a chunk of next year, but then we should start to see some relief on the horizon as the housing market stabilises again and inflation and interest rates start to ease a bit," he said.
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45 Comments
The report's key finding include:
Inflation has likely peaked but it could be 2024 before it drops back below 3%
Dunno, cabbage might cost as much as a Big Mac next month.
House prices are expected to continue to fall through to mid-2023.
From my amateurish math, the supply of houses will peak in 2023/2024
The Official Cash Rate is expected to increase to a peak of 4% by year end before starting to fall in 2024.
Some were expecting a pivot, the Fed Chair shut this out. Say that the interest rate hikes are 75,50 and 25 bps to the end of this year, then our OCR ought to be up by 1.5%, to 4.5%.
It'll be an imagination Christmas this year, I suspect.
We should cancel Christmas this year.
With all the talk of economic malaise, some might even experience Santa's sacking.
Continuing tight labour market is the key - as is widely expected……
High employment levels will enable mortgagors to hold on to their real estate through the finite period of higher interest rates.
TTP
What happens when we’re in a recession and homeowners start to lose their jobs?
That's not the catalyst.
It's when tenants start to lose their jobs. Those on part-time hours/industries sensitive to discretionary spend will be the first to go as things continue to tighten.
As the old saying goes: When your neighbour loses their job, it's a recession. When you lose yours, it's a depression. Just needs tweaking for our landlorded gentry and it will be accurate.
I can imagine it'll be very hard to squeeze rent from a tenant that's just lost their job.
Would be nothing more painful (or entertaining) than a Landlord with a newly unemployed tenant, in a property that's been kicked off Interest Only lending, while facing a tax bill on any rent they do receive due to the removal of interest deductibility, and their only option being to sell into a soft "buyer's market".
It will be more painful for the tenant than the landlord. Most financial businesses are required to allow customers to plead hardship and make payment arrangements - but this for some reason isn't required of the landlord 'business' model.
I've had moments in my past where we faced exactly this situation - in one scenario it was a private rental, and the landlord's son was going through exactly the same issue at the time, so they were very understanding.
In the other it was managed by an agency, who just said, 'nope', here's your notice (technically in this case it was too soon, but we had the option of moving in with family and paying the rent owed out of the bond just made sense).
At least the landlord [hopefully] still has their home, even if they lose the rental. Same can't be said for the tenant.
"ASB see tough year ahead"
Finally !
Whizz gee Yvil... this seems back to front from you (though I have noticed your change of tune lately)... what's your pick for downside risk. And please don't give me the open-ended, maybe answer
by Yvil | Fri, 04/05/2018 - 13:36 "So be brave and let the great depression happen, it's the purge the whole system needed. It's much better than the long slow downward spiral we're on now, which will still lead to a depression"
Yvil, how long do we have to wait?
You are just "parroting" now RP.
I question the context of that comment in 2018.
ASB has picked up the message in a bottle that the rest of the world has been broadcasting for a while,maybe they will lift some of their TD rates to acknowledge that reality?
Nick has been idling in his role for way too long. All his big Four peers : Dominick, Cameron and Andrew K moved on when they had the chance.
I often question if the kiwi "bank economists" that are trotted out to the media on a regular schedule could find their ass with both hands.
Clearly, it’s you who’s incompetent, Brock, not the bank economists……
In fact, you’re the logical successor to incompetence king, Crash Crusader (aka Retired-Poppy), who seems to have fallen off his log. 🪵
TTP
A little random ad hominem there, just to spice up the morning.
TTP seems a little salty this morning...
Tim's understandably frustrated. His desperate search for bigger fools to sit in his office and listen to his ( ) has come up with nothing 😭
Fallen off his rocker too ;)
Polly wanna cracker?🦜
No choc wafers available ?
A year ago they claimed interest rates will be on hold for a very long time... what happened?
A year ago they claimed interest rates had peaked... what happened?
- sent from me in 2023.
Inflation happened DGM, a few of us, not many, saw it coming last year.
Economists would have struggled to see inflation coming.
You would need to have a basic understanding of the economy and what happens when you flood the world with cheap money for a long time. But to be fair they were a bit busy borrowing and lending money and buying investment properties to think about all that stuff that only really affects the poor peeps.
They have a new model for forecasting now which i quite like - they watch whats happening, then say in a years time it will probably look different, but maybe not totally different, or maybe the same.. but its not guarenteed. Either way it probably wont be really bad so now might be a good time to buy a house coz kiwisaver fees went up 15% :)
We sure did and were shocked that the RBNZ wasnt tightening way back then, they left it too long and now have a much bigger mess to clean up
A few of us, not many, see inflation continuing to increase during the next 12months thanks to a falling NZD. But most people have no idea what a balanced budget is including the finance minister. Sell your Auckland house now and buy 2 in Perth, quick before labour create a emigration tax
A lot of rubbish, wishful thinking in their forecasting, they (and anyone else) really haven't got a clue what inflation, interest rates and productivity (read GDP) will look like in 2024.
The correction always hurts. Just think of it as creating lots more room for the next potential upside.
My best mate runs a large retail store that sells home appliances. The last two months have been dead sales wise. It has never been so bad. As house prices go down retail spending contracts. NZ is going into tough times. He will be laying off staff in order to survive. He can survive with less staff as no one is entering the store anyway. His suppliers say what he is experiencing is nationwide.
We are witnessing the very start of the reversal of Orr's "wealth effect".
Still waiting for Orr to give a speech all about it, and tell us what to call this latest RBNZ-engineered phenomenon. Perhaps he could call it the "poverty effect" or the "un-wealth effect"?
Orr was so enthusiastic about the "wealth effect"... so keen to give speeches about it... so sure that he was our Great White Savior... our banker-fandangler-extraordinaire ... so keen to jack the whole country up on debt to achieve it... and now there is nothing but silence from him about it. Crickets 🦗🦗🦗
It was so much fun to follow Orr down the slippery slide of more and more debt to buy cars and boats and rentals and home appliances. It is going to be a long and painful drag to get back out of the debt hole.
"reverse taonga"
agnoat?
Yes Fitz, this "wealth effect" is huge on its downward trajectory, as "mum & dad" property investors are already stretched financially with higher interest rates and no claiming of mortgage interest on income....plus we have inflation, worldwide from this endless money printing. Then there is trying to keep up with healthy homes .....and if anything goes to the Tenancy Tribunal, you can guarantee the judge will side with the tenant. And once people stop spending, demand falls and jobs will go (as already posted here above) .....then its down the rabbit hole into a recession.....
But we have nothing to worry about, just listen to Uncle Ashley - he will allay all those "mum & dad" property investor fears :)
yeah, if only they understood stability and sustainability these roosters wouldn't run about from one extreme to another.
When the tide goes out, you see who is swimming naked
and this is just a appetizer
...👀
Howdee R-P .....great to see you back, flying the flag for the folks out there, who are not pushing their fly ridden wheelbarrow of sh*t .... yeehaa !!
From the file of
“state the bleeding obvious “
and they get paid for this …
Oddly, although house prices in Welly have fallen 25% or more, I'm not seeing any real flow-on effects as of yet. Shops and restaurants still seem to be doing well, at least the ones I frequent. However, I don't expect this to last.
Only 32 percent of households have a mortgage on the primary residence. There are plenty of people with no mortgage on the house they bought eons ago. In fact higher interest rates give them more return on their cash in the bank. Family member just got a 7.5% pay rise. Remember, for every person that paid a fortune for their house last year, their was a seller who is now loaded to the gunnels with cash!
I’m predicting inflationary pressures to be persistent despite the rate hikes. Reason being fuel price effects are just starting to flow into raw material prices and soon into products. Raw materials like resins plastics have doubled, fertiliser tripled. Crop failures globally have also cut supplies. Sure demand has dropped but prices have increased faster. Possibly stagflation. Zero growth but high inflation. Central banks have no choice but to hike to contain this or expect civil unrest soon. The wage spiral increases have also begun.
Macro front: German power prices spiked 2000 nzd per Mwh. That’s 2 bucks per kWh, about 7 times what we pay in nz at 30cts per kWh.. do the maths
A super tough 2023 for sure.
I guess we will have to wait and see. But there is nothing like talking up the doom and gloom. This type of rhetoric is probably just as helpful as raising interest rates. I wonder how many will still go out and get the new iPhone 14?
Q: since Stalinda has rooted our economy, under the guise of Covid, my question is.... Where would you invest $1 million, for 12 months, for maximum return ( safely)...
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