Consensus of economists sees two years of slow growth ahead for NZ

The outlook for growth in the New Zealand economy looks tough over the next few years. Photo / Getty Images

New Zealand faces a tough few years of low GDP growth if the consensus forecasts of economists pan out.

Annual average GDP growth is forecast to slow to 0.4 per cent in the year to March 2024 before recovering to 1.1 per cent in 2025.

“Higher interest rates are starting to dampen demand as the impact of previous increases in the Reserve Bank’s Official Cash Rate (OCR) is transmitting through to the broader economy,” said NZIER senior economist Ting Huang in the latest Consensus Forecasts report.

“This will continue to drive a slowing in activity over the coming years. Added to this is the downside risk from weaker demand for New Zealand exports, primarily due to the weaker growth outlook in China. Offsetting these are the upside risks from the strong recovery in net migration, which will likely support demand over the coming years.”

The NZIER Consensus Forecasts are an average of New Zealand economic forecasts compiled from a survey of financial and economic agencies.

The collective outlook for inflation during the year ending March 2024 has been revised higher.

Annual CPI inflation is forecast to ease to 4.3 per cent before decreasing to 2.4 per cent in 2025. The persisting stickiness of domestic inflation pressures has increased inflation expectations for the coming year. There is also an upside risk from the strong net migration.

Meanwhile, wage growth forecasts have been revised lower for the years 2024-26.

Although annual wage inflation is still at record highs, the increased inflows of migrant workers have contributed to a marked easing in labour shortages. This will help to moderate wage inflation over the coming years.

The short-term outlook for unemployment and employment have been revised lower and higher respectively, with the labour market overall remaining strong.

Forecasts of household spending had been revised higher through to 2026, Huang said.

“With over half of mortgages in New Zealand due for repricing over the coming year, household discretionary spending will be further restrained. However, some of this slowing in spending will be offset by the additional demand for goods and services from increased net inflows of migrants over the coming years.”

Export growth forecasts have been revised lower for the years through to 2026. Over recent months, the slowing Chinese economy is weighing on their demand for New Zealand exports, especially dairy and logs. This has pressed down export commodity prices and returns. The uncertainty over how soon the Chinese economy recovers will influence New Zealand’s export growth outlook.

Forecasts for the NZ dollar (on a trade-weighted index basis) have been revised lower for the coming year and higher for 2025.

“There has been little change in the yield attractiveness of the kiwi against other currencies over the recent months given the Reserve Bank has been keeping the OCR at 5.50 per cent,” Huang said.

“However, the weaker export demand from China weighs on short-term expectations of demand for [the currency].”

The kiwi is expected to track between 70.8 and 71.6 on the TWI from 2024 to 2027. It is currently sitting at 69.8.