The BulletinJanuary 15, 2024

A brighter tomorrow? The NZ economic outlook for 2024


Things are looking a lot rosier than this time last year – with some major caveats, writes Catherine McGregor in this excerpt from The Bulletin, The Spinoff’s morning news round-up. To receive The Bulletin in full each weekday, sign up here.

Inflation is coming down, slowly

With the country still rousing itself from its holiday stupor, news remains thin on the ground. So this week we’ll be looking at what lies ahead for New Zealand in 2024, starting today with the economy. At the start of the month the UN’s World Economic Situation and Prospects report noted that housing shortages – and the accompanying higher rents – would continue to slow NZ’s attempts to curb inflation. The UN report forecasts NZ will end 2024 with inflation at 3.4%, then drop to 2.6% in 2025. That’s less optimistic than Treasury, which is forecasting inflation back within the Reserve Bank’s target 1-3% range by the end of this year.

Where to for interest rates?

As inflation drops, so too should we see falls in interest rates. Despite the tough talk from the Reserve Bank’s Adrian Orr who said in November that mortgage rates need to stay where they are “for a long time to come”, the consensus among economists is that interest rates have peaked. Now the questions are when they’ll start coming down, and how fast. Swap rates – the cost to banks of borrowing money at a fixed rate – have fallen considerably in the last few months, giving banks a “margin blowout” on the money they currently lend, says commentator Tony Alexander. David Cunningham of mortgage brokers Squirrel thinks those margins give banks a lot of room to manoeuvre. “I would be surprised if we don’t see most fixed interest rates down between 0.5% and 1% by March,” he tells Stuff.

Inflation and migration the top two economic issues, say experts

Not surprisingly, inflation is one of the most important issues in 2024, according to economists surveyed by the Herald’s Liam Dann (paywalled). While tradeable inflation – that caused by imported goods such as oil – is already returning to normal, non-tradeable cost prices (more specifically, housing) is the “sticky part”, says ASB’s Nick Tuffley. That stickiness is exacerbated by record-high migration, which the economists voted the number 1 economic issue for 2024. The net economic outcome of all those new residents is hard to forecast, writes Dann. “On the one hand, adding more workers is disinflationary, taking pressure out of the labour market, on the other, adding more consumers is inflationary. More people means more spending.”

Red Sea crisis jeopardising global economic revival

All told, the outlook is a lot more positive than this time last year – with one huge caveat. The crisis in the Red Sea, where US- and UK-led forces (backed by nations including NZ) are bombing Houthi rebels blocking key shipping routes, could shatter hopes of a global economic recovery, the World Bank is warning. Bank economists say the situation “now threatens to feed through into higher interest rates, lower growth, persistent inflation and greater geopolitical uncertainty”, the Guardian reports. As a result of both the Red Sea crisis and severe drought in the Panama Canal, shipping rates have “jumped almost 8% week-on-week, reaching their highest levels since October 2022 and almost double November levels”, BusinessDesk’s Brent Melville reports (paywalled). That’s a lot, though for context they jumped by a humongous 400% at the height of the Covid pandemic in 2021.


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