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ASB Economic Forecast December 2023 - Cautiously Optimistic: NZ Is Past The Worst, But Has A Slow Climb Ahead, Says ASB

Strong migration and spending have provided a boost to the New Zealand economy which, according to the latest ASB Quarterly Economic Forecast, is now on an upward trajectory. But the pick-up in momentum will be gradual, says ASB.

“It’s looking increasingly like we are past the worst,” says ASB Chief Economist Nick Tuffley. “The economy looks less likely to contract now, so that’s good news, but we need to be mindful we’re really being helped out by strong migration which has enabled us to skirt a recession.

“We’re seeing inflation fall noticeably. It’s going to take some time and isn’t likely to be back in the target 1-3% bracket until late next year, but it is on the way down. We’ve also seen food price inflation fall back a bit to 6.3% year on year, down from a peak of 12.5%, which will take some of the pressure off households. This is positive but we are going to have to be a bit patient before we start seeing interest rate cuts come through. We’re expecting the Reserve Bank to keep interest rates on hold until early 2025, which will keep the mortgage pressure on for home-owners.”

Having been the first industry to reflect increasing interest rates, the housing market has also been the first to rebound with prices increasing over the past six months and time to sell falling. The report points to steady migration putting pressure on housing demand. This is likely to further prop up house prices even with the OCR holding at a high level. Mr Tuffley says the rebounding housing market will help boost construction as investors and developers regain their confidence.

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“Reinstating interest expense deductibility for residential property investment and shortening the Brightline tax period will lift investor interest in property and potentially boost prices. It could also help moderate rental inflation. We expect house prices to lift 7% in the coming year and strengthen further in 2025 once interest rates come down. On the construction side, we expect a slight contraction in the short-term until building margins become more attractive and then things are likely to pick up quite quickly.”

Meanwhile business confidence has continued to lift with Mr Tuffley saying business owners likely view a National government as more likely to focus on policies that will reduce red tape.

“Business confidence had been on the up this year and we saw it lift again in response to the change of government, so this is a continuation of that trend but also reinforces that businesses too are seeing the economy move past the worst. We now need this increased confidence to translate into hiring and investing, although we do expect weak growth and high interest rates will create some caution from businesses about capital spending initially.”

Meanwhile, the global economic outlook remains subdued, resulting in lower commodity prices and less demand for New Zealand’s key primary exports, while household budget pressures are weighing on imports. China’s continued weaker than expected post-COVID rebound is also having an impact says Mr Tuffley.

“China’s post-COVID rebound has been underwhelming, and this is putting downward pressure on New Zealand’s key commodity exports and constraining the tourism sector’s rebound. China’s growth is set to remain modest by its standards, at around 4.5% next year.

“Overall, there are definitely some bright spots in the outlook and all signs are pointing to New Zealand being past the worst but the next 18 months will still be a grind for households and businesses.”

The latest ASB Quarterly Economic Forecast will be available online at

Other recent ASB reports covering a range of commentary can be accessed at our ASB Economic Insights page:

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