Get ready for a marked slowing of the economy, warns ASB chief economist Nick Tuffley, as the growth outlook for New Zealand’s key trading partners also continued to deteriorate.
Get ready for a marked slowing of the economy, warns ASB chief economist Nick Tuffley, as the growth outlook for New Zealand’s key trading partners also continued to deteriorate.
“Regardless of whether we actually dip into a recession or not, the New Zealand economy’s going nowhere for a period of time,” says ASB chief economist Nick Tuffley.
In its final economic outlook report of the year, ASB warns New Zealanders to brace for a challenging 2023 with the economy,picking the economy to contract by one per cent.
The contraction would be driven by falling consumer spending and declining building activity, as construction struggles with surging costs in a cooling housing market, said Tuffley.
ASB forecasts the Official Cash Rate to peak around 5.5 per cent in the first half of 2023 from its current level of 4.25 per cent.
“The impact of this rapid tightening is going to be a marked slowing of the economy: our collective desire to spend is running well ahead of what we can effectively supply at a reasonable cost,” Tuffley said.
“After huge growth recently, we now expect the economy to shrink around one per cent by the end of 2023.”
Unemployment was set to rise, mainly through continued population growth, leaving more job seekers without work.
However, there would be some decline in employment levels as well, he said.
“Recession or not, it is going to be a period of challenge for a number of households and businesses,” he said.
Consumer spending volumes would shrink as households respond to increases in the cost of living and rising interest rates.
“Although overall debt servicing costs are going to be manageable, the pace of change is marked and a tiny minority of borrowers will face huge increases in debt servicing costs, he warned.
“Savers will earn more, but the overall impact on cashflows will be down.”
Tuffley’s advice for those with debt was to consider the potentially higher payments now.
“If you have a mortgage that will refix over the next year or two, have a look at how your payments could change in the future, so you can gauge the potential financial impact and start to make different decisions now if needed,” he said.
Nick Tuffley, ASB chief economist. Photo / Supplied
“If your business is linked closely to household spending (particularly durable goods) and the housing market, be alert for changes in customer spending habits as people adapt to their circumstances. Watch your own cashflow position closely, too.”
Looking more broadly, the economy would face headwinds as the economic growth outlook for New Zealand’s key trading partners continued to deteriorate.
The Consensus Economics monthly survey now suggested trading partner growth for 2023 of 2.6 per cent below historical averages and the 3.9 per cent expected at the start of 2022, he said.
“China’s growth is being dragged down by its continued zero-Covid policy,” Tuffley said.
“The way forward remains challenging for China. Keeping with heavy Covid restrictions will restrict growth as well. But the rapid spread of Covid, particularly amongst a relatively low-vaccinated elderly population would also be tragically disruptive.”
