Kirikiriroa – New Zealanders are set to face a tough year as the continued pressures of inflation, housing and a tight labour market combine, according to the latest ASB economic forecast.
Growth is set to be quite weak, with the economy potentially flirting with recession.
Inflation has likely peaked but it could be 2024 before it drops back below three percent.
House prices are expected to continue falling through to mid-2023 and the OCR is expected to increase to a peak of four percent by year-end before starting to fall in 2024, the report says.
Inflation hit a three-decade high in the middle of 2022. ASB chief economist Nick Tuffley says although the outlook is still uncertain, inflation should ease gradually over the next couple of years.
Many households with mortgages are going to feel added mortgage servicing pressure over the next year. ASB has over half of fixed rate mortgages rolling over in the next 12 months so there’s going to be people progressively feeling the impact of that even into mid next year.
Eventually, though, interest rates are likely to come down, but not until sometime in 2024.
The latest economic forecast showed households, the housing market and home-building are most likely to feel the effects of high inflation and interest rates,.
Housing construction is also expected to contract gradually amid declining prices, rising interest rates and building costs and a steady closing of the past supply shortfall.
Household living costs have lifted noticeably, wage growth has not kept up so households’ purchasing power has taken a dent this year.
Fuel prices are down from their extreme at least for the time being and while supply chain impacts will persist for some time, the intensity and cost escalation is starting to ease.
The labour market looks set to remain tight. The availability of working age people is likely to grow at a slower pace compared to the pre-pandemic trend.
ASB says it is going to be challenging this year and a chunk of next year, but then Aotearoa should start to see some relief on the horizon as the housing market stabilises again and inflation and interest rates start to ease a bit.
