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Westpac NZ anticipates a challenging trajectory for the government in 2024, as it grapples with the dual imperative of tightening fiscal policies while addressing the escalating demand for public services. The bank’s economic overview for the year underscores the importance of the Reserve Bank maintaining a steady course on interest rates, refraining from hikes as long as inflation remains within the target range of 1-3 percent.
Kelly Eckhold, Westpac’s chief economist, emphasized the likelihood of the official cash rate remaining unchanged throughout 2024, although the possibility of interest rate increases looms if economic and inflationary adjustments lag behind expectations. Eckhold highlighted the persistent stickiness of domestic inflation and the slower-than-anticipated adjustments in the labor market, factors likely to keep the Reserve Bank vigilant in the foreseeable future.
Regarding fiscal policy, Eckhold pointed out the necessity for the government to contribute to inflation control through tightening measures. Acknowledging the recent trend of fiscal policies contributing to economic growth rather than curbing it, Eckhold stressed the urgency of addressing the fiscal deficit estimated at around 4 percent of GDP by the International Monetary Fund. However, rectifying this deficit poses challenges amidst a rapidly growing population demanding increased government services.
Economic growth in 2024 is projected to be modest, with businesses and households expected to adopt a cautious stance, leading to sluggish growth. External risks, including geopolitical tensions and a weak global economic environment, further compound the uncertainty for New Zealand businesses.
Despite these challenges, there are some positive outlooks, particularly in the agriculture sector, which is poised for recovery with improved prices and favorable climatic conditions. The housing market is also expected to thrive due to robust population growth and impending changes in investor tax regulations, with house prices forecasted to outpace inflation over the next two years.
In essence, the economic landscape for New Zealand in 2024 is characterized by a delicate balancing act, necessitating tight monetary and fiscal policies to facilitate economic rebalancing and inflation moderation.