Rising unemployment, growing brain drain in store for NZ - Infometrics

• Infometrics consultancy predicts tepid growth until mid-2025
• Lower interest rates will filter through and spark growth, more cuts needed
• Annual growth 1.9 percent by end of 2025, 2.7 percent by mid-2026
• Job losses and weak employment growth to push unemployment to a peak of 5.4 percent
• Reduced migration gains lead to net population loss

Tepid growth, rising unemployment, sliding migration, and a growing brain drain to Australia are all in store for New Zealand, economic consultancy Infometrics is forecasting.

The consultancy's latest view on the economy is that some sparks of life should be seen from the middle of next year with growth close to 2 percent by year end, rising to nearly 3 percent in 2026.

Chief forecaster Gareth Kiernan said central to it all was Reserve Bank rate cuts, which would take time to have their effect.

"Although the Reserve Bank's interest rate cuts since August have finally provided some light at the end of the tunnel for Kiwis, continued increases in the unemployment rate will mean households remain cautious in their spending decisions over the next nine months.

"With inflation already just shy of the bank's target midpoint, there is scope for further easing, with another cut of at least 50 basis points before Christmas."

However, Kiernan, who has previously been critical of the Reserve Bank's actions, said he had concerns the central bank would overdo the rate cuts.

"There is also a risk that larger and faster cuts going forward amplify next year's economic upturn, as the Bank tries to make up for being behind the curve.

"The bank has already exacerbated the economy's ups and downs over the last four years, ultimately creating more hardship for businesses and households than might otherwise have been necessary."

Population loss

Kiernan said unemployment was expected to peak at 5.4 percent next year, but Australia's lower jobless rate and better jobs market would reduce immigration numbers and tempt record numbers of New Zealanders to head across the Tasman.

The forecast was for a net gain of 16,000 migrants by the end of next year, barely a tenth of the peak in October last year.

"Excluding the border closures during the Covid-19 pandemic, population growth of 0.2 percent a year in March 2027 would be the slowest since about 1986, and this shift will limit economic growth to an average of 2.1 percent between mid-2026 and mid-2028."

Kiernan said other headwinds included less government spending, while the housing market recovery would be modest, although an increase in lower interest rates would likely only cause a modest lift in the housing market

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