The effects of a steady Official Cash Rate at 5.5% for the past year are increasingly impacting the New Zealand economy. Although retail banks are lowering their new rates, many homeowners are refixing their loans, leading to a steadily rising average mortgage rate. The NZ economy is experiencing a crunch, with sectors such as property and construction in serious trouble and unemployment rates climbing.
Government spending cuts have begun to impact various sectors including telecommunications. Firms like Spark NZ have reported weaker demand due to these cuts. Further economic stress is anticipated with potential job cuts as the Coalition Government plans to detail cuts in public sector spending within their first budget to compensate for income and property tax cuts.
The pressure on the NZ economy is unlikely to ease soon. Chief Economist at BNZ, Mike Jones, predicts no significant signs of economic recovery until 2025. Meanwhile, the OECD recommends the consideration of a capital gains tax and revenue increase to manage future cost pressures.
The measures to combat these challenges include the expected reduction of interest rates by the RBNZ in November. This step together with the proposed policies in Budget 2024 could be key in helping the NZ economy recover and bounce back to its normal growth rate, as suggested by OECD economist Clare Lombardelli.
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Key Facts Prime Minister Christopher Luxon did not explicitly say he wanted average house prices to fall, seeking only “downward pressure”. Housing Minister Chris Bishop stated that house prices need…