Inflation, tax and interest rates: Economists share 2024 predictions - The Front Page

Inflation, job insecurity and interest rates that have gone through the roof have been plaguing New Zealanders over the last few years, but could 2024 finally bring some respite?

Today Kiwibank senior economist Mary Jo Vergara and Infometrics chief forecaster Gareth Kiernan speak to the Herald’s Front Page podcast about what the economic outlook is for this year.

Kiernan said households were still under pressure due to the impact of mortgage rates, and he believed there would still be some conservative household spending through the course of the year.

“We’ve got very strong population growth and net migration at the moment, and so what that’s doing is it means that for your average business, if you’ve got every customer that’s coming in spending 5 per cent less, say, than they were previously, that sort of squeezes your volumes. But at the same time, you’ve got more people coming in through the door.”

This, he said, means while New Zealand’s per-capita growth numbers didn’t look that great, the country’s overall aggregate spending activity will probably hold up better this year than previously expected.

Asked about tax cuts, Kiernan said that they are more of an adjustment that would take the tax threshold roughly back to where it was between 2017 and 2018, when inflation was adjusted for. However, he is not sure how likely it is that the changes will happen.,

“There’s a lot of pressure on Government in terms of infrastructure provision, in terms of operating spending around areas like health, for example, where it’s increasingly difficult to sort of retain our staff and nurses, and that type of thing. It’s not a clear-cut decision about whether the Government can give the money back or not.”

“People talk about it being a tax cut. It’s not really, it’s just a bit of adjustment back to where we were, and is certainly not even going back to that sort of 2010 tax level.”

Vergara told the Herald households were facing a tough trio of high interest rates, increased inflation and weak house price growth.

“There’s really little appetite for [households] to go out and splurge, and it’s the same for businesses. Business confidence has improved, but still, their activity indicators are still pointing towards a weak economic outlook. So it doesn’t bode well for the fiscal outlook either.”

She also cautioned the attacks on container ships in the Red Sea could see “a renewed lift in imported inflation”, though not as severe as it was during the pandemic.

Listen to the full episode to hear more from Mary Jo Vergara and Gareth Kiernan on what this year may hold for Kiwis economically.

The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am. This episode was presented by Katie Harris, an Auckland-based journalist with a background in social issues reporting who joined the Herald in 2020.

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