Economy not expected to improve until mid-2025

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Households should watch their costs until at least mid-2025 when economic conditions are expected to improve, Infometrics chief forecaster Gareth Kiernan says.
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Households and businesses are being advised to keep a close eye on costs until the middle of next year, when economic conditions are expected to improve.

‘It’s probably another 12 months before it will feel like the worst of the downturn is behind us,” Infometrics chief forecaster Gareth Kiernan said.

He said households and businesses were likely to see lower interest rates, less contractionary fiscal policy and an improving world economy between mid-2025 and 2027, with annual economic growth returning to 3 percent.

But until then, Kiernan said economic pressures would continue to suck more money out of household budgets, while recent job losses would undermine income security.

Record high net migration made per-capita results look even worse, with household spending recording its biggest decline per person since 1992, excluding the 2020 lockdown, he said.

However, Kiernan said migration numbers should ease following recent government policy changes, though the number of New Zealand-citizen departures settling at a higher level – attracted by a perception of better opportunities in Australia.

“The economy is being hit harder than expected a few months ago, with hopes of a soft landing disappearing in a flurry of housing market stress and rising unemployment,” Kiernan said.

“The resilience displayed by households during much of 2023 has been sorely tested by mortgage rates of over 7 percent and there is little sign from the Reserve Bank of any relief this year.”

Infometrics forecast annual inflation to drop below 3 percent by early 2025, which would give the Reserve Bank confidence to begin cutting the official cash rate in November from 5.5 percent to a neutral rate of 4 percent by the end of 2025.