NZ economy: Recession tipped to be twice as deep as earlier forecasts – ASB

New Zealand’s looming recession is expected to be twice as severe as previously thought, and New Zealand has been warned to prepare for a tough remainder of the year.

The grim projections by ASB economists come as food prices rise at their fastest annual rate in more than 30 years and many struggle to afford basic necessities.

The ASB forecasts a 2% contraction in gross domestic product (GDP) by early 2024. This is double the 1% economic contraction the bank predicted in its last quarterly update.

Also, according to the latest ASB economic forecasts released today, GDP will fall by 0.6% in the December 2022 quarter, and the country’s expected recession may start sooner than expected.

ASB chief economist Nick Taffrey says homeowners are feeling the most strain and pain, and that high interest rates and inflation will continue to hold back consumer spending in the year ahead.

Tuffley argues that the rise in the Reserve Bank’s (RBNZ) Official Cash Rate (OCR) is coming to an end, even though inflation is expected to exceed 7% in the first half of the year.

“Things are heating up and the stimulus package to weather the pandemic has probably been too successful in sustaining the economy, so we are now feeling its effects and the economic drag,” Taffrey said. .

“Rising costs of living are expected to increase household spending by about $150 a week this year.Income growth is unlikely to keep pace this year, despite strong wage growth. It’s going to be a tough year, and home renters will feel these effects too much.”

Treasury economists also blame the government for at least some of the high inflation the country is experiencing.

In a just-released study, Treasury economists say New Zealand’s inflation can be roughly split by a third.

Last week, US inflation fell to 5% in March, according to official data.

The International Monetary Fund has also warned of a grim outlook for New Zealand’s economy. In her 2023 outlook forecast, Aotearoa will be one of the lowest GDP growth and highest inflation regions in the Asia-Pacific region in the coming years.

Informatics chief economist Brad Olsen said this highlights the vulnerabilities facing New Zealand.

“The IMF underscores the risks given the recent rise in housing prices and rising interest rates will put the economy in a somewhat difficult situation over the next few years.”

Meanwhile, recent extreme weather events that have caused shortages of fresh food, household goods and cars could lead to a further rise in inflation in the near future, according to an ASB report.

Taffrey said rebuilding after events such as Cyclone Gabriel and the Auckland floods would help boost the construction sector, but that “could be a while away”.

“Reconstruction will boost GDP over the next few years, but as we saw with the Christchurch earthquake, replacing infrastructure will take a long time, especially when locations and designs need to be rethought to improve resilience. I know it can take,” said Tuffley. He said.

“Overall, people will have to put away their wallets and cut back on spending for a while as things have cooled down and they have to endure a year of a little more pressure on their finances.”

But he said two-thirds of pre-pandemic visitor numbers had returned to New Zealand, and continued tourism recovery was positive.

Meanwhile, food prices recorded their biggest annual gain since 1989, up 12.1% in March compared to a year ago, according to Stats NZ.

Grocery prices also predictably jumped again in March, up 14% over the year.

According to Stats NZ, food prices rose 2.3% in March and 2.1% in February on a seasonally adjusted basis.

Wellington college student Aidan Donoghue said he bought very few fruits and vegetables last year. Instead, he and his partner take vitamins and supplements to get their nutrients.

“Sometimes I want real bananas instead of banana flavor. There was a time when I can remember Taka, but that was about it.”

The 19-year-old works part-time at McDonald’s and relies on free meals at night. He is also paid by Studylink.

Donoghue said his clothes are saved or purchased using Afterpay, an interest-free, “pay-as-you-go” service.

“I wish we could live in a world where we don’t have to worry about not earning or getting paid.” [it to] work. “

An Auckland woman who requested anonymity said she too was feeling the pinch and had searched the kitchen cupboards to find little food.

“What am I going to have for dinner? I can’t think of anything.

The same stark emptiness greets her when she steps into the bathroom. We have her toilet paper and sanitizer, but the shampoo, conditioner and moisturizer (which she calls herself “indulgent”) run out quickly.

“I look around the house and think I need to charge a lot or buy a lot, but I can’t.”

She works part-time and receives benefits. Nearly half of her income goes to the rent of her Bush apartment flat, and she says her mental health problems are worsening as she stretches what’s left to cover her necessities. I was.

“I need to buy cooking utensils to save money, but I can’t afford it.” [it]Essentials are now on the list of luxuries.

“I go to second-hand stores [but] There are things I would never buy second hand, like underwear and bras, and I need a new bra right now.

Brooke Fiafia of Auckland Action Against Poverty said the team was being “flooded” with emails and walk-ins as more and more people struggled to buy basic things.

“Nothing is worth the price increases. It spans electricity, water, rent and gas,” she said.

She said the cost of living crisis is “exacerbating problems we already know in our communities,” especially for families affected by the floods earlier this year.