New Zealand likely to remain in recession until next year – Infometrics predicts

Construction, along with retail, are expected to be the two sectors most affected by the recession.
Picture: 123 RF

According to one economic forecaster, the economy is likely to be in a recession right now and will likely be squeezed into next year amid rising interest rates and household budgets.

Consultancy Infometrics has released a new set of forecasts for the year ahead, arguing that the central bank’s (RBNZ) aggressive rate hikes, a housing slowdown, labor shortages and supply chain disruptions are already taking a toll on the economy.

“We think the economy is currently in recession,” the senior forecaster said. continue.” Gareth Kiernan said.

03082016 Photo: Rebekah Parsons-King.  Gareth Kiernan, Economist

Gareth Kiernan, senior forecaster at Consultancy Infometrics believes that the final quarter of 2022 will show negative growth.
Picture: RNZ / Rebecca Parsons-King

He said the contraction might not be very deep, around 1-1.5%, but it could not and could not be avoided as the RBNZ raised the official cash rate to 5.75% by the middle of this year and mortgage rates to a 14-year high. delivered above 7 percent

“Along with other cost-of-living pressures, higher mortgage repayments are beginning to reduce spending volume compared to the past two years.”

Kiernan said that this would inevitably lead to an increase in unemployment, which would reach five percent next year.

“Job loss directly affects people’s spending, but increased concerns about job and income security lead to more cautious spending behavior among a wider range of households.”

“Despite hopes that the United States may avoid a recession and China’s economy bounce back after the end of Covid-19 restrictions, the uncertain global outlook has added to these risks,” he said.

“Probably the other biggest downside risk that we have there is just the state of the global economy and the expected recession in the US and Europe … that will flow through and have a stronger impact on New Zealand, particularly in terms of our export sectors. “

The construction and retail sectors were expected to feel the brunt of the recession, with home prices down a combined 22 percent from their two-year highs.

Kiernan said that with many international disruptions such as transportation and stabilizing global production, it is not all negative.

Nevertheless, he said the RBNZ could be expected to keep raising the OCR until it saw real inflation under control, even if that meant deepening the recession.

Leave a Comment