The New Zealand economy has faced a challenging first half of 2024, with concerns about its state and future prospects. Economist David Hargreaves reflects on key economic indicators such as inflation, unemployment, and GDP, highlighting mixed results and a lack of clarity. While inflation is heading in the right direction, it is not definitively under control. Unemployment is rising faster than expected, and there are signs of decline and a lack of growth in the economy [b789c48b].
Hargreaves also mentions the impact of high interest rates, which have had delayed effects on mortgage holders. Falling house prices have had a psychological impact on the population. He concludes that the economy appears to be in a state of decline and uncertainty, with further challenges expected in the second half of the year [b789c48b].
Despite the challenges, the New Zealand economy has shown some signs of recovery. In the first quarter of 2024, the economy returned to growth, exiting the recession with a modest expansion. Gross domestic product (GDP) increased by 0.2% from the previous quarter, surpassing economists' expectations. However, GDP per capita contracted by 0.3% compared to the previous quarter, marking the sixth consecutive quarterly decline [670490d4] [5bbc81de] [659549a5].
The main drivers of growth in the first quarter were increased tourist spending and primary production, while the manufacturing and construction sectors experienced declines. The Reserve Bank of New Zealand (RBNZ) has maintained its key interest rate at 5.5%, the highest level since 2008, in an effort to control inflation. The RBNZ Chief Economist anticipates that the economic slowdown resulting from tight monetary policy will bring inflation back within the bank's target range later this year. Most economists predict that the first rate cut will occur in late 2024 or early 2025 [670490d4] [f65072e9] [659549a5].
Independent economist Tony Alexander argues that the Reserve Bank's policies and lack of intervention are contributing to the current economic weakness. He believes that the current recession is necessary to weed out under-capitalized and inexperienced operators in various sectors. However, he expresses concern for those who have no experience fending for themselves without government assistance. The state of the economy, housing market, and general sentiment is expected to worsen before improving in 2025 [659549a5].
The New Zealand government has recently delivered a budget aimed at addressing some of the economic challenges. The budget includes modest tax relief and lower spending, providing a boost to lower- and middle-income earners. However, the government has faced criticism for neglecting the country's Indigenous Maori population [eab14cfb].
The IMF has expressed concerns about the government's plan to borrow for tax cuts, warning of potential inflationary damage [526e8693] [81879b6e] [0b84cde5] [f65072e9] [20c5613c] [558f297e]. New Zealand's newly elected Prime Minister, Christopher Luxon, acknowledges the need to address the impact of immigration on rents, house prices, and inflation while finding the right balance [e0a1cad2].
In conclusion, the New Zealand economy has faced uncertainty and challenges in the first half of 2024. While there have been some signs of recovery, concerns about inflation, unemployment, and a lack of growth persist. The government's budget measures and the Reserve Bank's monetary policies will play a crucial role in shaping the future of the economy [b789c48b] [670490d4] [81879b6e] [eab14cfb] [5bbc81de] [659549a5].