New Zealand faces weaker economic outlook as high inflation, interest rates continue: forecast
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E-mail Xinhua, September 12, 2022
WELLINGTON, Sept. 12 (Xinhua) -- A latest forecast showed expectations of weaker activities across most sectors in New Zealand in 2023 and higher inflation and interest rates.
Added to this are the continued global supply chain disruptions due to ongoing uncertainty about the COVID-19 pandemic, the regional conflict and signs of slowing global growth, according to the forecast by the New Zealand Institute of Economic Research (NZIER) released on Monday.
Despite a stronger starting point for household spending, the downward revision through to 2025 reflects the expectation that the dampening effect of higher interest rates on spending will become more apparent as households roll into much higher fixed mortgage rates, the forecast said.
The residential investment forecast has also been revised down, reflecting weaker housing market activity and dampened demand due to higher interest rates.
Businesses are more pessimistic. In the face of rising cost pressures, higher interest rates and heightened uncertainty, their appetite to invest will reduce further over the coming years, it said.
Recent short-term softening in global demand has resulted in a downward revision of the export growth forecast for the near term, the report showed.
While there are concerns about a weaker global outlook weighing on global demand, constraints in the worldwide supply of food commodities still underpin strong demand for New Zealand exports over the coming years, it said.
Annual Consumer Price Index (CPI) inflation in the year to June 2022 hiked to 7.3 percent, a new record high since June 1990. This result reflects the strong growth in import prices and the persisting capacity pressures due to supply chain disruptions and labor shortages, the NZIER report said.
While stronger wage growth is expected across the projection horizon, annual CPI inflation for the coming year has been revised higher before easing in 2024, it said, adding, "Nonetheless, inflation is likely to stay above the Reserve Bank's inflation target band mid-point of 2 percent over the medium term through to 2026." Enditem
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