Fitch Solutions is picking another lift in interest rates, expecting the Reserve Bank of New Zealand (RBNZ) will hike rates by 25 basis points in May taking the Official Cash Rate to 5.5%.
The research agency said in its latest Asia-Pacific report that the RBNZ “will remain resolute in taming inflationary pressures.”
New Zealand’s central bank has been among the most aggressive rates-hikers in the Asia-Pacific in 2022, behind only the Philippines, Mongolia, Pakistan and Sri Lanka.
Fitch said the May rate hike should be the RBNZ’s last for the year, and NZ’s central bank would then adopt a neutral stance, and it expected prices would ease from the impact of interest rate hikes combined with slower growth.
It said most central banks in the Asia-Pacific “are not done” with their rate hiking cycles, and as rates increases happened at a rapid pace it was likely that the full impact of monetary tightening had yet to be fully transmitted to the "real economy."
Fitch has predicted New Zealand’s economic growth would fall to 1.1% in 2023 compared with 2.2% in 2022.
At the end of 2022, inflation was running at 7.2%, down only slightly from a 32-year high of 7.3% seen in the June quarter.
Fitch said inflation would fall to under 4% in 2023 and exports would stay steady, neither falling or growing.
The global research agency, sister company of Fitch Ratings, said the combination of higher interest rates, falling house prices, an easing labour market and slower global growth will weigh heavily on New Zealand's growth this year.
“What this means is that we should see domestic demand growth slowed significantly, with an improvement in net exports providing a slight relief … The economic outlook is also reflected in lacklustre retail sales, growth data and subdued investment intentions.”
The recent New Zealand Institute of Economic Research (NZIER) Quarterly Survey of Business Opinion showed that 66% of firms expected a deterioration in economic conditions in the coming months, dropping from 70% in the December quarter.
This survey also showed signs of that RBNZ hoped-for weakening in demand, with sales overtaking finding workers as a major concern for NZ businesses.
The bright spot for the NZ economy in 2023 will come from our largest trading partner, China. Fitch said the reopening after its Covid-zero policy, and economic rebound, in China should provide "some offset" for NZ.
Fitch expects China’s economy to grow by 3.8% in 2023, increasing its prediction from 3.1%, and said China’s post-Covid recovery will lift growth in some economies, with Thailand set to get the largest benefit from rising tourist numbers.
Chinese visitors accounted for 27% of total international tourist arrivals in Thailand prior to 2022.
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Fitch said the May rate hike should be the RBNZ’s last for the year, and NZ’s central bank would then adopt a neutral stance, and it expected prices would ease from the impact of interest rate hikes combined with slower growth.
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