NZ tipped for 'deeper' recession in 2023 - ASB

ASB is tipping New Zealand to enter a deeper recession than previously thought, with its chief economist predicting a "tough year" ahead.

The bank today published its Quarterly Economic Forecast, where it predicted a contraction of the New Zealand economy of 2% by early next year.

That's more than half the decline seen during the Global Financial Crisis.

Gross Domestic Product fell 0.6% in the December 2022 quarter. Inflation sits at 7.2%, with the next update on Thursday.

ASB chief economist Nick Tuffley says high inflation and interest rates will keep slowing consumer spending, with homeowners continuing to feel the pain.

“Things have overheated, and the stimulus to get us through the pandemic has been arguably too successful at keeping the economy running along, so now we’re feeling the effects of that and the economy being stretched," he said.

"The RBNZ is having to work hard to get inflation under control but is near the end of that job, although we can expect to see the impacts of high interest rates flowing through for a while yet.

"We expect rising living costs to add around $150 a week to household spending this year, and income growth is not likely to keep pace with this, despite another year of strong wage growth. It’s going to be a tough year, and home borrowers will feel these impacts disproportionately."

Recovery from the Auckland floods and Cyclone Gabrielle will likely spike inflation in the short term, with temporary shortages of some fresh food, household items and cars.

Longer-term, it would help boost the slowing construction sector.

Tuffley said people are spending less, but habits are also changing, with people paying for experiences like travel and concerts as lockdown becomes a thing of the past.

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“The continuing tourism recovery is another positive. We’re back to about two thirds of pre-pandemic visitor numbers to New Zealand and there’s still some scope for markets like China to recover, so that’s really going to help our tourism and entertainment businesses, although we expect labour shortages to hamper growth.”

Stats NZ yesterday revealed food prices were up 12.1% in March 2023 compared to March last year.