'Rolling maul' recession nears finish line

Franchises should be looking towards 2025 with optimism, based on the latest Westpac New Zealand Economic Overview released today.

In the August iteration of its flagship document covering the country's economic outlook, Westpac has sown further seeds of hope, with an 'end in sight' attitude to what it calls New Zealand's 'rolling maul' recession over the past two years.

"For almost two years the economy has been in a 'rolling maul' recession where one quarter of flat or slightly negative growth has merged seamlessly into another. This has been driven deliberately by a Reserve Bank aiming to bring high sticky inflation back to target. 

"Some hard yards have been covered in the last three months. Increased pessimism among households and businesses about when rate relief might come, combined with hawkish RBNZ rhetoric has prompted more rapid adjustment. We now find ourselves with a noticeably weaker economy and labour market that looks much more likely to push inflation back towards 2% given time. Population growth will slow as migration inflows fall off sharply due to fewer opportunities available in the NZ labour market."

The bank reports that, "These developments now give the RBNZ room to consider tempering restriction. Inflation is now just a touch above the top of the range and the lowest it has been in three years. That finish line now looks tantalisingly close."

While Westpac concedes circumstances are 'likely to remain tough for businesses and households for the rest of the year', it says relief is on the way.  "Improvement should be evident as OCR cuts, now expected to begin four months earlier than previously thought, hit the bloodstream and give some relief."

Growth in 2025 isn't expected to be stellar, says Westpac, while the global growth environment remains subdued and fiscal policy increasingly restrictive. But lower rates here and abroad will support better times ahead, it says.

"Inflation still has a way to fall to 2% - hence we don't see the RBNZ cutting either fast or deep. But by early 2026 rates should be close to neutral levels. The pace at which we get there will depend on how rapidly inflation approaches the target midpoint over coming quarters. Almost there .... finally."

Read the full New Zealand Economic Overview August 2024 here.

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