Key Facts

  • Last week’s revelation from Statistics NZ indicated that the New Zealand economy is performing weaker than expected.
  • The weaker GDP performance has led to speculation that the Reserve Bank (RBNZ) may enact rate cuts as early as July.
  • The BNZ’s chief economist, Mike Jones, anticipates cuts to the cash rate in the third quarter of next year.
  • Jones believes that lower retail interest rates from mid-year would contribute to a second half recovery.
  • The RBNZ previously mentioned that interest rate cuts are not expected until the start of 2025.
  • Inflation slowed down to 5.6% in the September quarter, still well above the RBNZ’s target range of 1-3%.
  • BNZ forecasts that inflation should hit the central bank’s target range by the end of next year.
  • Despite challenges, the economy is anticipated to showcase positive changes by 2024 with cost of living pressures easing and mortgage rate declines.

Article Summary

Recent findings by Statistics NZ suggest that the New Zealand economy’s performance was less robust than anticipated, instigating speculations about potential rate cuts by the Reserve Bank (RBNZ) as soon as July. These speculations have been reinforced by weaker than expected GDP figures from the September quarter.

Mike Jones, the leading economist at BNZ, anticipates reductions in the cash rate around the third quarter of the next year. According to Jones, if the market predictions hold, lower retail interest rates commencing from mid-year could fuel an economic recovery in the second half. On the contrary, if the cash rate remains constant at 5.50 percent or even increases due to RBNZ’s concerns about persistent domestic inflation, the economy might stagnate until 2025.

Even though RBNZ had signaled that interest rate cuts are not anticipated until 2025’s outset, the weakening GDP numbers led BNZ to question this assertion. Despite anticipations of a challenging year for the economy in 2024, BNZ observes some encouraging signs, including the prospect of inflation hitting RBNZ’s target range by year-end.

BNZ forecasts suggest easing living cost pressures and declining mortgage rates, which, coupled with inflation falling below wage growth, might offer some relief to New Zealand’s economy by late 2024.

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