Photo: RNZ
Businesses and households should brace for a bumpy ride next year as the economy emerges from a period of high interest rates, but better times are on the horizon, according to Kiwibank.
The bank is forecasting a year of two halves for 2025 - the first being bumpy with glimpses of growth, and an uplift in activity in the second half.
Due to the lag between economic recovery and labour market changes, Kiwibank said unemployment will keep steadily rising in the first half and is expected to peak at 5.3 percent mid-year, before gradually improving.
But after two years of recession, Kiwibank said economic growth was expected to reach 2.2 percent by the end of the year as the Reserve Bank (RBNZ) cuts interest rates due to easing inflation.
Kiwibank believes the official cash rate will be reduced by a further 1.25 percentage points to 3 percent next year.
With falling interest rates, house prices will likely rise 6 percent next year after going sideways in 2024, it said.
Kiwibank economist Sabrina Delgado said 2025 would be better for businesses and consumers.
Confidence would be key.
"We've seen a marked lift in sentiment since the RBNZ began cutting rates. Businesses are raising their heads and looking to the future, not just facing immediate struggles," Delgado said.
Kiwibank is sticking by a prediction house prices will rise by 6 percent next year. Photo:
House prices set to rise again
The housing market's subdued run was likely to end in 2025, according to Kiwibank.
"Housing has been sluggish for too long and this year, in particular, we've experienced a muted housing market. House prices have virtually traded sideways in the past 18 months. Nonetheless, we maintain our long-held forecast of 6 percent house price growth next year," Delgado said.
The market would be aided by falling interest rates, alongside government policy changes like the reintroduction of interest deductibility.
"Falling interest rates is one tailwind for the housing market. The return of the investor is another. First-home buyers have been active participants in the market's downturn, while investors have been sidelined. But we think that will change next year," Delgado said.