Two major reports out in the last week delivered a sense that the economy is still holding up okay, but that could soon change.
The Reserve Bank’s Financial Stability Report and the latest unemployment figures both indicate that New Zealand is showing resilience in the face of high inflation and a rapidly changing job market.
While things feel bearable at the moment, most forecasts suggest that Kiwi families could be in for some tough times as those rising interest rates start to bite.
“Most economists are definitely tipping that the unemployment rate will start rising from here,” BusinessDesk deputy head of news Rebecca Howard tells the Front Page podcast.
“Some forecasts predict up to 80,000 people could lose their jobs,” Howard says.
The one caveat here is that migration is picking up, which in turn means that the labour pool is becoming larger - which in turn has a flow-on effect when it comes to unemployment.
“Regardless, it’s definitely going to be harder for people. The Reserve Bank has forecast unemployment to be around 5.1 per cent this time next year, and they see it peaking at 5.7 per cent in the March quarter of 2025.”
That would put the numbers on par with the historical average New Zealand has faced when it comes to unemployment. And while that might not seem like much, it still requires tens of thousands of job losses to get to that point.
On top of this, Kiwi families also face the prospect of a hard-hitting interest rate crunch as mortgages come up for renewal.
“There’s data showing that around 50 per cent of mortgage holders will have to refix in the next 12 months. So to use a hypothetical example, if you bought a house in Wellington in November 2020, you probably fixed at around 2.6 per cent for three years, meaning that you paid roughly $1171 per fortnight. When you re-fix in November, you’re going to be fixing at 6.3 per cent and paying $1793. So that’s an extra $622 per fortnight.”
This will mark the start of a very tough period for Kiwi families as they see their disposable income disappear in a bid to keep up with these high mortgage costs.
So will New Zealanders be able to hold onto their homes? How much risk is there of falling into negative equity? What does this mean for struggling businesses? And will the Government or banks step in to help?
Listen to today’s episode of The Front Page to hear the full story.