Recession likely to be avoided in New Zealand, forecaster says

Slowing inflation and booming immigration are expected to help prevent New Zealand going into a recession over the next 18 months.

Economics consultancy Infometrics said the economy had been more resilient than first thought, despite severe stresses over the past three years.

Its latest report said inflation would be brought under control by Reserve Bank rate rises, without a recession.

In predicted annual growth of 0.9 percent during 2024 - higher than previously forecast.

"The fact that inflation is heading in the right direction while growth is still, generally speaking, remaining slightly positive is a pretty good outcome for the economy, given the sort of stresses that we've been through and the excess demand that has been throughout economy over the last couple of years," Infometrics chief forecaster Gareth Kiernan said.

Over the next 18 months, growth was expected to be "patchy", he said.

"But given the strength of population growth, given that households in general seem to be remaining pretty resilient to higher interest rates, and the labour market is still strong, we're expecting the economy to avoid another recession."

Immigration was a significant factor boosting the economy, Kiernan said.

"We've got record high numbers of people coming into the country and that is helping to just ease a lot of those labour market pressures and stresses that we saw last year, as well as helping to stimulate demand and leading to a bit of a resurgence in the housing market as well."

However, migration could not continue at existing rates, Kiernan said.

"We saw through the second half of last decade, with strong migration over a number of years that it really did contribute to stresses in the housing market and stresses on the border economy, in terms of our infrastructure being able to cope with all those extra people.

"You certainly don't want people coming in at the rate we've seen over the last year, on an ongoing basis."

Migration was likely to drop over the next 18 months, because the demand for workers that built up during the pandemic had eased since borders opened, he said.

Unemployment was at 3.6 percent, but likely to rise, Kiernan said.

"We're not expecting a massive lift in unemployment over the next year, but as the pent-up demand for workers that we've seen with the borders being shut, as that is satisfied we're expecting unemployment to push a bit higher from here up towards 4.9 percent in 2024."

House prices were likely to increase by 5 to 10 percent over the next year, he said.

"There is a bit of upward pressure coming through in the housing market, due to the strong migration and the demand that is generating.

"We expect that to continue to push up house prices through the next year.

"A change in government policy around investors and the rules around tax that apply to them... could add to the demand for housing as well."

Kiernan said there had been plenty of good news, with more growth than expected and easing inflation, while the consumer price index rose 1.8 percent between July and September, also better than predicted,

"Looking forward through the next year, we're not expecting interest rates to be cut any time soon, but it now looks like there's no need for the Reserve Bank to lift the Official Cash Rate further."

Farmers and small towns were facing tough times, Kiernan said.

"With the very weak global economy, in China in particular at the moment, that's weighing on commodity prices, so our export revenue is under plenty of pressure across the likes of meat, dairy and forestry.

"With costs having risen substantially for producers over the last two to three years - higher fuel prices, higher interest rates, higher fertiliser costs - you put all that together and profitability does look tough for farmers at the moment.

"That's going to weigh on some of those provincial economies over the next year or two."