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New Zealand Real GDP growth is projected to ease to 1% in 2023 and 1.2% in 2024. Private consumption is set to weaken due to lower employment growth and rising mortgage-servicing costs. Higher interest rates and declining house prices will weigh on investment. Unemployment is expected to increase throughout the projection period, on the back of weaker activity growth. The slowdown in demand, increasing spare capacity and stabilising energy prices should gradually reduce inflation through 2023-24. Inflation remains well above the central bank’s target range and, together with still elevated medium-term inflation expectations and rapid wage growth, requires monetary policy to remain restrictive. Public debt has risen substantially in recent years and fiscal consolidation should continue to ensure that the government is on track to meet its 2026 operating surplus target. This will also help reduce inflationary pressures. Reforms that strengthen ICT skills supply are essential for sustainably boosting productivity and growth. The economy is beginning to slow amid policy tightening Economic activity is beginning to slow amid high inflation and rising interest rates. Private consumption has held up well, owing to high employment, but investment, especially residential construction, has weakened. Business sentiment remains subdued. Forward-looking indicators point to a softening of labour market pressures, with a lack of demand overtaking labour shortages as the most important factor limiting output. Inflation remains high and broad-based. In the first quarter of 2023, year-on-year headline consumer price inflation eased but was still 6.7%. Core inflation continued to rise, reaching 6.8%, fuelled by strong growth in wages and service prices. Inflation expectations are also still high but have started to decline, especially at the two-year horizon. The extreme weather events that hit New Zealand’s North Island early in the year caused severe damage to local communities and infrastructure, including important highways. Production losses were concentrated in the primary sector, likely leading to upward pressure on food prices and lower agricultural and horticultural exports. International tourism arrivals have recovered rapidly, and net immigration is high, which will also contribute to inflation in the short run. Elevated global commodity and energy prices have contributed to strong imported inflation. The direct implications from financial volatility in the US and Europe have been limited, as domestic banks have sound liquidity and have taken on relatively little interest rate risk.
New Zealand
1. Average new standard mortgage rates advertised by registered banks in New Zealand. Source: Reserve Bank of New Zealand; and Statistics New Zealand. StatLink 2 https://stat.link/mzdueh
OECD ECONOMIC OUTLOOK, VOLUME 2023 ISSUE 1: PRELIMINARY VERSION © OECD 2023