Economic outlook brighter with GDP average forecast at 2% in 2024 / 2025

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Migration is boosting spending.
Photo: RNZ / Marika Khabazi

Migration is boosting spending and forecast to brighten the economic prospects for the main centres, led by Auckland.

Infometrics forecasts the Reserve Bank would begin cutting back on the official cash rate (OCR) from August, as population growth eased labour market pressures and wage growth, driving annual inflation back to within its 1-to-3 percent target.

The economic think tank estimated annual gross domestic production (GDP) will average 2 percent in 2024 and 2025, which compared with its October forecast of 1.2 percent annual economic growth.

“Interest rate cuts will be gradual, taking the OCR to 4 percent by the end of 2025, but the easing will help foster more positive trends in spending and investment activity,” Infometrics chief forecaster Gareth Kiernan said.

He said the revised the outlook was supported by high net migration that was expected to take longer to retreat from current record levels, as well as inflation falling faster than assumed in the October forecast.

Net migration was set to ease from its late-2023 annual peak of 132,300, with inflows moderating to about 80,000 at the end of this year.

Conditions tougher for rural sector

“The soft Chinese economy also poses ongoing concerns for agriculturally focused regions throughout the next 18 months,” Kiernan said.

“The soft landing currently being experienced by the economy will not be evenly spread across New Zealand.

“Weak export prices will weigh on revenue, creating a divergence in economic activity in the urban areas benefiting from high net migration and the provincial areas exposed to China’s slower economy.”

Main centres to lead growth

Areas benefiting most from population growth would see improved business confidence and increased investment spending.

“So it is very much an Auckland story and some of the other main urban centres around the country as well,” Kiernan said.

“Additional people mean additional spending, and these more buoyant demand conditions for businesses will encourage more investment later this year and into 2025, while the downturn in construction activity will be less marked because the larger population also needs to be housed.”

However, global inflationary risks remained, such as rising international shipping costs, due to the Red Sea conflict, as well as the demand high net migration placed on the housing market and infrastructure.

Despite the pressure, Infometrics forecasts house price inflation would remain below 5 percent this year, amid relatively high mortgage rates and the expected introduction of debt-to-income loan restrictions.