ANZ Economists Predict Softer Landing for NZ Economy, Potential Early Rate Cuts

Date Published: 20 June 2024

Key Facts

• ANZ economists suggest New Zealand’s economy may face a softer landing than previously expected.
• ANZ’s chief economist, Sharon Zollner, predicts interest rate cuts earlier than RBNZ’s forecast.
• Local markets predict interest rate cuts in November, February, and May.
• Soggy housing data shows downside risk for property prices, which might rise modestly by 3% in 2024.
• ANZ forecasts a 0.6% quarterly and 3.5% yearly rise in Consumer Price Index (CPI) for Q2.
• Upcoming GDP data ranges between -0.2% and +0.2%, with ANZ’s outlook at the higher end.

Article Summary

ANZ’s top economists indicate that New Zealand’s economic outlook might be more stable than initially anticipated. Sharon Zollner, chief economist at ANZ, has noted the possibility of earlier-than-expected interest rate cuts due to disinflation trends. Contrary to the Reserve Bank of New Zealand’s (RBNZ) forecast of rate cuts in August, ANZ projects these cuts to occur as early as February next year, although local markets are hopeful for cuts even in November.

The forecast follows the release of less-than-robust housing data that suggests potential downside risks for property prices. Senior ANZ economist Miles Workman noted that the Real Estate Institute of New Zealand’s House Price Index fell by 0.4% month-on-month in May, indicating a modest rise of only 3% throughout 2024. This prediction takes into account current market conditions and the impact of recent policy changes, such as debt-to-income and loan-to-value ratio restrictions.

Inflation trends, monitored through select price indexes, also play a crucial role in ANZ’s forecasts. The data suggests a slight cooling in inflation rates, with a projected 0.6% quarter-on-quarter and 3.5% year-on-year rise in CPI for Q2, which is just below RBNZ’s forecast. This points to a potential quicker disinflationary trend than expected, although RBNZ is closely watching domestic inflation, which remains sticky.

Looking ahead, this week’s GDP data will be a key indicator, with forecasts ranging from -0.2% to +0.2%. ANZ is more optimistic with a projection at the higher end. According to Zollner, the minor differences in these predictions reflect technical accounting nuances rather than significant economic divergences. Any GDP growth less than 0.7% would likely be seen as disinflationary, impacting how quickly inflation subsides.

Source Link: To read the full article, click here.