TL;DR:
- Rabobank forecasts a decrease in inflation and a reduction in interest rates in the latter half of the year.
- The Official Cash Rate (OCR) is expected to drop from its peak of 5.5%, with two rate cuts anticipated.
- Economic challenges include a recent recession, unemployment pressures, and the impact of global conflicts on trade.
Economic prospects are looking up, with expectations of easing inflation and a potential drop in interest rates later this year, according to Ben Picton, a senior market strategist at Rabobank. Speaking to Rabobank’s food and agribusiness clients in Waikato, Picton shared insights into the bank’s economic forecasts, highlighting a peak in the Official Cash Rate (OCR) at 5.5% and predicting two rate cuts by the Reserve Bank of New Zealand (RBNZ) in the second half of the year.
The bank’s outlook is shaped by several factors, including a downturn in economic activity, increasing unemployment pressures, diminished demand for goods and services, and the economic repercussions of the Red Sea conflict with the Iranian Houthis. These elements contribute to the current economic transition, moving away from the pandemic-induced constraints.
New Zealand’s economy, which entered a technical recession early in 2023 and contracted again in the third quarter, is expected to show further contraction in the final quarter, indicating another technical recession.
Despite inflation ending last year at 4.7%, above the RBNZ’s target range of 1-3%, there’s cautious optimism that demand for goods and services, which has been declining since 2022, might rebound without triggering further OCR increases.
The labour market has demonstrated unexpected resilience, with unemployment rates rising more slowly than anticipated. This resilience suggests higher wage growth and increased aggregate demand, although the RBNZ aims for a reduction in aggregate demand to manage inflation effectively. Beneath the surface, however, there are signs of softness, with expectations of a rapid increase in unemployment that could concern the RBNZ.
Looking beyond 2024, Rabobank anticipates the OCR to stabilise around 3.5%, signalling a period of economic adjustment and potential relief for businesses and consumers alike. This forecast offers a glimmer of hope for New Zealand’s economy, suggesting a gradual move towards stability and growth after a challenging period marked by the pandemic and global conflicts.
