The economy has faced significant headwinds during the past 18 months, marked by a double-dip recession and stagnant growth. An aggressive monetary policy has kept interest rates high.
Higher interest rates hurt and the economy would struggle to grow this year. That led the bank to a revised forecast of just 0.1% growth for this year, down from an already soft 0.5%, the bank’s latest economic report said.
The Reserve Bank of New Zealand had been among the most aggressive central banks in a quest to tame inflation, she said.
"The ‘higher for longer’ rates environment hurts. And the impact of restrictive monetary policy is undeniable."
But Kiwibank expected the next move in rates would be downwards, echoing the mantra "survive ’til ’25" as next year would be better. If inflation and economic conditions evolved as expected, the first rate cut would be November. "Rate cuts will be a breath of fresh air in a deflated economy. It will help reinvigorate the economy," she said.
The housing market showed varied recovery rates with Auckland and Wellington experiencing the steepest declines. While Otago had not escaped unscathed, it did manage to avoid some of the larger falls in other regions, Ms Delgado said.
When there was the massive surge in house prices during the Covid-19 times — nationally there was about a 45% increase — Otago had a "still pretty chunky" increase of 30%.
When interest rates started to rise and house prices reached their lows, the region only fell about 7.4% while the rest of the country averaged about 17%-18%. As of Thursday, house prices were up 6.5% from the lows of last year while nationally that figure was about 2.3%.
Both Otago and New Zealand as a whole had done better than expected when it came to post-Covid tourism recovery. While there had been talk that it would take years to rebuild, that did not occur and there was a quick return, she said.
Tourist levels were about 80% now of pre-Covid levels and that missing 20% was coming from weakness in the Chinese economy. The report also highlighted external factors, such as China’s economic struggles and the global interest rate environment, which influenced New Zealand’s economy.
The labour market was weakening under the weight of recession and the economic slowdown but continued to move away from its record low levels in 2021.
Consumer demand had cooled and so too had firms’ demand for labour.
"Unfortunately we haven’t seen the end of it. Recessions tend to feel worse at the tail end, because unemployment lags the broader economy by about nine months," the report said.
Even with output starting to pick up into 2025, albeit off low levels, the bank still expected the unemployment rate would reach a 5.2% peak in the middle of next year.
