In brief
- IMF cites NZ’s intentional recession tactics. Housing affordability, inflation concerns persist. 1% growth forecasted for 2024.
- Effects of high interest rates are now unfolding. Mortgages strain households; property value stabilises with immigration.
- NZ unemployment now nearly 4%, modestly overshooting prediction. KiwiSaver funds decline; clean energy stocks drop. NZ share market struggling.
IMFs view of NZ’s economy is a policy induced slowdown
The International Monetary Fund (IMF) has released its review of New Zealand’s economy. It notes NZ is experiencing a deliberate slowdown towards a recession due to government policies. These measures appear to be taking a toll on the wealth and prosperity of Kiwis.
The report indicates that, while New Zealand’s economy bounced back quicker than many developed nations, this resurgence was so rapid that it led to an inflationary imbalance—too many dollars chasing too few goods and services. This issue was compounded by difficulties in getting products to market and restricted worker movement due to closed borders.
The Reserve Bank of New Zealand (RBNZ) has acted to cool down the economy by increasing the base interest rate to 5.50 percent as of October 2021. It remains there.
The IMF notes New Zealand is now seeing a slowdown in economic activity, driven by a tightening labour market pushing wages up, alongside persistent inflationary pressures. Although there’s been some correction in housing prices, higher interest rates continue to make home ownership unattainable for many.
With the country’s borders reopening in the post-pandemic era, an uptick in migration is lending some support to the housing market.
The IMF projects modest growth for the New Zealand economy at 1% annually for 2023-24, aiming for an inflation rate between 1-3% by 2025. It’s worth noting that such forecasts are subject to change and often diverge from actual outcomes.
Property sellers adjust expectations more in line with market, while rental costs creep up
Data from September shows a closing gap between Realestate.co.nz’s asking prices and REINZ’s selling prices. This indicates sellers are adjusting to the current market pricing, making it easier for the gap to be closed. The difference has dropped from 13.6% to 8.2%.
The number of sales of rural properties has decreased 21% compared to the same timeframe last year.
Residential rental costs rose by an average of $40 weekly compared to last year, with Auckland seeing a $60 hike. The median rent has increased from $540 to $580 weekly.
Unemployment spikes higher than projected
New Zealand’s unemployment rate rose to 3.9% in the September 2023 quarter, slightly above the Reserve Bank’s prediction of 3.8%, potentially signalling a cooling labour market. Economists from ASB expect unemployment to approach 5% next year.
KiwiSaver losses somewhat mirror New Zealand’s stock market.
September saw a rough period for KiwiSaver funds, with recent data revealing that most multisector KiwiSaver funds—the most common among Kiwis—experienced losses. Investments in KiwiSaver decreased by $2 billion to $96b. Losses varied, with conservative funds dropping by 1% and aggressive ones by 3.1%.
Clean energy funds have faced the most challenges this year—some declining around 30%—with rising interest rates apparently impacting their appeal.
The continuing 16-month decline of the NZ share markets may play a role in the poor Kiwisaver returns. The market hit a new 16-month low. Energy and technology stocks struggled, but some companies like Ryman Healthcare and A2 Milk have improved.
