The Reserve Bank of New Zealand (RBNZ) has today stated that the economy is “likely” to enter recession in 2023.
It comes as the official cash rate has today been raised by 75 basis points to 4.25%.
RBNZ accompanied the news with a Monetary Policy Statement that contained some less than optimistic forecasts.
“The New Zealand economy – like many economies around the world – is expected to enter recession in 2023,” part of the statement reads.
“This economic contraction will, in part, be a result of higher interest rates, as the Reserve Bank acts to reduce inflation and return employment to a more sustainable level.
“It will therefore differ from contractions experienced in New Zealand in recent decades when poor economic outlooks, often related to international conditions such as those during the global financial crisis, were cushioned by lower interest rates.”
It goes on to add, “in the central projection, this recession is assumed to be spread over several quarters, although there is uncertainty about the timing”.
Politicians have also used today’s official cash rate rise to take shots at each other in the House.
National’s finance spokesperson Nicola Willis asked Finance Minister Grant Robertson if the OCR rise would worsen the cost of living crisis.
“Certainly for those households who need to re-fix their mortgages over the next couple of years they will face increased cost of living pressure,” Robertson replied before touting his government’s policies to help deal with the extra burden.
“Does the minister think it’s appropriate to be engaged in political point scoring when in the next year Kiwis will need to find thousands of extra dollars to service their mortgages?” Willis fired back.
“Lessons on political point scoring from the Olympic champion in that regard are not ones I am going to accept,” Robertson said in response.
The Finance Minister then went on to talk about the global factors which have seen inflation rise worldwide, and how New Zealand’s low unemployment and debt record puts us in a better position than some.
Luxon weighs in
National Party leader Christopher Luxon has also given his thoughts on the cash rate hike at a media conference this afternoon.
“It is incredibly sobering today. I think it’s incredibly sad for New Zealand when you start to understand the impact that rapidly rising interest rates, the biggest increase we’ve ever seen in this country, has taken effect,” he said.
“The reality is this is happening because the government has its foot flat-out on the accelerator with unprecedented levels of government spending, a billion dollars extra each and every week, we’ve been talking about that now for over a year.
“What’s obvious to us is that we have a government that doesn’t have a plan to get us through inflation and as we look ahead it’s incredibly worrying to see recession and the risk of rising unemployment.
“Let’s get really sobering about the reality of this: interest rates are going to continue to rise because inflation is stubbornly high, and we are now heading to recession.”
Reserve Bank says latest rate rise “necessary”
“The Committee agreed that the OCR needs to reach a higher level, and sooner than previously indicated, to ensure inflation returns to within its target range over the medium term.
“Core consumer price inflation is too high, employment is beyond its maximum sustainable level, and near-term inflation expectations have risen,” it said in a statement after the announcement.
“In New Zealand, household spending remains resilient, especially considering the rise in debt servicing costs, the fall in house prices, and low levels of consumer confidence.
“Employment levels are high, and income growth and household savings are supporting spending. The rebound in tourism is also supporting domestic demand.”
The Reserve Bank hopes the move will help stem the tide of inflation.
ANZ chief economist Sharon Zollner told Breakfast this morning it’s a factor in today’s decision that the RBNZ won’t meet again until February.
“Seen in that light, it’s not really such an acceleration, but of course, it feels like one,” she explained.