NZIER Consensus Forecasts show a weaker economic outlook as high inflation, interest rates continue

The New Zealand Institute of Economic Research (NZIER) has made a downward revision to the near-term outlook for the economy in their latest Consensus Forecasts published on Monday.

Key takeaways

Despite a stronger starting point for household spending, the downward revision through 2025 reflects the expectation that the dampening effect of higher interest rates on spending will become more apparent as households roll into much higher fixed mortgage rates.

Recent short-term softening in global demand has resulted in a downward revision of the export growth forecast for the near term.

In the latest NZIER Consensus Forecasts, while stronger wage growth is expected across the projection horizon, annual CPI inflation for the coming year has been revised higher before easing in 2024.

Annual CPI inflation hiked to 7.3 percent in the year to June 2022. It is expected to moderate to 4.8 percent in 2023 and ease to 2.1 percent in 2026.

The upward revision to short-term interest rates reflects the Reserve Bank’s August Monetary Policy Statement, which indicated further monetary tightening, and it would look to increase the Official Cash Rate to 4.1 percent by mid -2023.

Market reaction

At the time of writing, NZD/USD is keeping its renewed upside intact at around 0.6115, up 0.05% on the day.

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