Westpac Economic Overview, November 2022 – No Easy Way Down

Mounting pressure on domestic prices and wages means that the odds of a soft landing for the New Zealand economy are getting slimmer, according to Westpac’s latest Economic Overview.

Persistently high inflation means that the Official Cash Rate is expected to rise further to a peak of 5% next year, says Westpac’s Acting Chief Economist Michael Gordon. “While the Reserve Bank fared better than most in recognising the need for action, the scale of the inflation problem means that it has still found itself on the back foot.”

Mr Gordon notes that monetary policy always takes some time to have its full effect on the economy. “Many borrowers have yet to feel the impact of higher interest rates. That will change a great deal over the next six to twelve months as they come due for refixing.”

“Consequently, we expect to see a softening in consumer spending and the demand for workers over the next year or so, with growth effectively stalling by 2024,” says Mr Gordon.

“Indeed, it’s more likely that we would be forecasting an outright recession were it not for the recovery in international tourism, which has normally been a sizeable net plus for the New Zealand economy.”

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