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Making sense of the conflicting signals across the economy

There are currently a lot of moving parts to New Zealand’s economic outlook, as we consider prospects throughout 2024 and into 2025. The challenges to forecasting are nowhere near as pronounced as they were during the Covid-19 pandemic, when the expectations and outcomes were, literally, off the charts. Instead, there are conflicting pressures and signals making it difficult to know which influence will ultimately prevail – conditions that are typical when the economy is at a turning point.

Understanding these different trends is important for business leaders to consider in their planning for the year ahead. Our Economic Forecasts are available via subscription to assist with business planning, and this article provides a taste of the sort of analysis we provide regularly to clients.

Coping with cost-of-living pressures

Inflation data over the last few months has been encouraging, but there have also been areas of lingering concern. Since March 2023, headline inflation has moderated from 6.7% to 4.7%pa, but Chart 1 shows that domestically based non-tradable inflation has only come back from 6.8% to 5.9%pa. Recent comments from the Reserve Bank indicated that it’s not thinking “job well done” and resting on its laurels quite yet.

The cost-of-living squeeze on households is less acute than it was during 2022 and 2023, but it is still there – particularly when the effects of higher mortgage rates are factored in. Despite most of the lift in debt-servicing costs (we estimate about 85% of the increase) now having occurred, homeowners will continue rolling off lower fixed rates throughout the rest of this year.

More workers and more customers

That pressure on household budgets has been evident throughout the last couple of years, with quarterly retail sales volumes declining almost 6% since the end of 2021. Over the same period, migration has turned around from a net outflow of almost 15,000 people per annum to a net inflow of over 130,000 people – with population growth accelerating from 0.1%pa in mid-2022 to 2.8%pa by the end of 2023.

As migration lifted to unexpected record highs during the second half of last year, the effects of these additional people in New Zealand have become more apparent. The worker and skills shortages faced by businesses have largely been rectified, and aggregate economic activity has been buoyed by the spending and demand associated with the influx of migrants. The latter effect has led to some concerns about stronger demand fuelling more persistent domestic inflation, as noted above, but Chart 2 shows that it has also cushioned businesses from the worst of the spending slowdown, as their potential customer base has expanded rapidly.

Per-person spending is back to around the same level as before the pandemic, but headline sales activity (adjusted for inflation) is still about 5% higher than it was pre-pandemic. For households, the lower per-person spend makes sense given the pressures on household budgets. But for businesses, whether spending comes from one person or more people isn’t important – the overall level of spending is.

The latest migration numbers, for December 2023, suggested that the annual net inflow has peaked and is starting to moderate. Even so, we have revised up our migration forecasts throughout the next couple of years, with demand for additional workers set to hold up at stronger levels for longer than we had previously expected.

Little assistance from a mixed global outlook

Prospects for global economic growth during 2024 remain subdued. Despite the apparent soft landing for the economy and likely start of easing monetary conditions by the Federal Reserve, Consensus forecasts see US GDP growth slowing from 2.4%pa during 2023 to 1.4%pa this year.

Western Europe’s growth is expected to hold at around 0.5%pa this year, as high energy prices and the ongoing conflict in Ukraine continue to weigh on activity. Lingering inflationary pressures mean that monetary conditions are also expected to remain tight for longer, with economic growth struggling up into the 1.0-1.5%pa range during 2025.

Continued soft demand for goods in North America and Europe is constraining Chinese production. The effects on China’s GDP growth are compounded by the country’s shrinking population. Consensus forecasts expect China’s economic growth to slip to 4.6%pa this year and 4.3%pa for 2025.

More detail in our Economic Forecasts

Our latest macroeconomic forecasts, published for clients earlier this month, cover the key trends outlined above, as well as a range of other influences, and examine how they will affect conditions for NZ businesses during 2024 and beyond. If you would like more information on subscription options to our Economic Forecast service, please contact your Infometrics client manager or Gareth Kiernan ( or 021 119 3876).

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