Economic growth is looking weak and the economy is flirting with recession, according to ASB's latest Quarterly Economic Forecast.
"New Zealanders are set to face a tough year as the continued pressures of inflation, housing and a tight labour market combine," the report said.
The report's key finding include:
- Inflation has likely peaked but it could be 2024 before it drops back below 3%.
- House prices are expected to continue to fall through to mid-2023.
- The Official Cash Rate is expected to increase to a peak of 4% by year end before starting to fall in 2024.
"Inflation likely hit its peak midway through this year, but it's going to take a while to get down to a sensible level so there's going to be a long tail," ASB Chief Economist Nick Tuffley said.
"The Reserve Bank has been reacting to this by rapidly increasing the Official Cash Rate, which we expect to reach 4% by the end of this year and remain high throughout 2023," he said.
"Many households with mortgages are going to feel added mortgage servicing pressure over the next year.
"We still have 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 we don't envisage that until sometime in 2024," Tuffley said.
The report also said that housing construction is expected to contract gradually amidst declining prices, rising interest rates, higher costs and a steady closing of the past supply shortfall.
Tuffley also said the labour market was proving to be a double-edged sword.
"On the one hand, we're seeing continued strong wage growth which will outpace inflation next year and lift people's purchasing power, but on the other hand, this is going to be a real challenge for employers when it comes to finding and retaining people," he said.
"Employers will need to start thinking longer term about how they cope with those challenges because we don't see much relief anytime soon.
"The message is it's going to be pretty challenging this year and a chunk of next year, but then we 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," he said.
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