PHOTO: FILE
According to ASB economists, households are bracing for a challenging year ahead, although there’s optimism that conditions may improve towards the year’s end. In their latest Quarterly Economic Forecast, they anticipate a sluggish period ahead, with Chief Economist Nick Tuffley suggesting a need for continued caution until interest rates ease and consumer spending rebounds.
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Tuffley predicts a “slow grind” in the coming months, with the economy expected to remain stagnant for the next three to six months. However, there are some positive indicators amidst the gloom. While overall living costs are projected to rise by approximately $70 per week for the average household, this is the slowest increase in several years, attributed to a slowdown in inflation. Wage growth is expected to outpace inflation, potentially easing financial strain for consumers, especially with a significant slowdown in food price inflation, which disproportionately affects lower-income households.
Although mortgage holders may face persistent high-interest rates throughout the year, Tuffley anticipates a less steep increase for those refinancing compared to previous years. He forecasts inflation to stabilize below 3% in the latter half of the year, prompting a reduction in interest rates, which should alleviate financial pressure, particularly for mortgage holders.
Despite a sense of a more settled environment, many households and businesses are still feeling the strain. ASB expects the Reserve Bank to commence interest rate cuts in November, contingent upon inflation indicators remaining within the target band of 1% to 3%. However, challenges persist, especially with relatively flat employment levels and the population influx from migration, posing hurdles for job seekers.
On a global scale, the economic outlook remains subdued. While there are some positive signs for New Zealand’s economy, including nearing the end of the struggle to contain inflation, the remainder of 2024 will present its share of obstacles for households and businesses alike.
Tuffley also predicts a rise in house prices by approximately 7% this year, with further increases expected in the following year.