Recovery ‘patchy’ until next winter, Infometrics warns

Friday, 18 October 2024

New Zealanders can expect the recovery to remain “patchy” until mid-next year, Infometrics chief forecaster Gareth Kiernan, says.

The Reserve Bank’s monetary policy settings had “exacerbated the economy’s ups and downs over the last four years, ultimately creating more hardship for businesses and households than might otherwise have been necessary”, he said.

Finance Minister Nicola Willis told the Institute of Finance Professionals on Wednesday that the “green shoots of business confidence are re-emerging”.

But Kiernan said that although interest-rate cuts implemented by the Reserve Bank had “provided some light at the end of the tunnel”, increases in unemployment would mean households remained cautious about spending over the next nine months.

“Job vacancies have dried up this year and, by June, employment growth will still be languishing at just 0.3% per annum as businesses consolidate their staffing requirements in the face of higher cost structures and weak demand conditions.

“As people re-fix onto lower mortgage rates and more money is freed up for discretionary spending, we expect the economy to regain more momentum during the second half of next year.”

Kiernan is not the only economist to warn of the risk of a difficult recovery.

Westpac chief economist Kelly Eckhold in July tipped a “two-speed recovery”, with an initial bump in growth getting the economy out of its deeper trough, followed by a slower upward grind.

Retailers, who had been among the most optimistic about economic prospects after the November election, now appear to be among the most downbeat.

Retail NZ chief executive Carolyn Young warned on Monday that its members continued to report a “difficult sales environment”.

“Consumer confidence is key right now and retailers are hearing that consumers are worried about their job security and only purchasing the essentials” she said.

Although Infometrics expects the economy to remain “weaker” through the first half of next year, it has revised up its estimate of economic growth next year to 1.9%, from 1.5%, rising to 2.7% by mid-2026.

“Parts of the agricultural sector will contribute to the recovery, as lower costs and better export prices improve profitability for dairy and beef farmers,” Kiernan said.

He is also forecasting a “modest pick-up in the housing market” next year as debt-servicing costs reduce and push annual house-price inflation above 5%.

The current lack of jobs was causing a sharp reversal in net migration, with fewer arrivals being compounded by more people seeking opportunities in Australia, he said.

“Infometrics forecasts that annual net migration will slip to about 16,000 by the end of 2025, and turn negative during 2026-27 as Australia’s unemployment rate remains below New Zealand’s rate.”