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Economic update: January 2023

In brief

  • OCR is expected to hit 5.5%, as the Reserve bank pursues its goal of creating a recession. 
  • World Bank forecasts global economy “Perilously close to recession”, but says the “right” government policy may help ease pressure.
  • Bad weather is set to push the cost of locally grown fruit and veggies, as rainfall ruins some crops. 

Economic update

On February 22nd, 2023 the Reserve Bank is expected to raise the official cash rate – the interest rate that banks borrow money at – to 5% from its current rate at 4.25%, with the goal of intentionally creating a recession and increasing unemployment to combat inflation. Unemployment is still near its lowest rate in many years.

Act Party leader David Seymour wants the RBNZ monetary policy committee to meet sooner, in January. Seymour was quoted summarizing the central bank’s messaging from late last year, saying “you’re all stuffed, you are going to have a recession; by the way see you in three months.”

Inflation and supply chain disruptions are currently a global issue that many countries are facing, and one that many believe is largely underestimated in official figures. 

Consumers have been reported as facing more concerns regarding the increasing costs of interest on their debts, particularly after the Christmas spending period.
Compounding this pressure on households, New Zealand’s consumer price index is still rising, it’s now at 7.8%, the highest since the 1980’s.

There is uncertainty around wage rates in relation to inflation, but in November 2022, finance minister Grant Robertson said wage growth was still higher than the rate of inflation. 

A recent report from New Zealand Institute of Economic Research indicates the lowest business confidence since records began, and shows deep pessimism across the wider NZ economy. Labor shortages remain a top concern of kiwi companies. This bodes well for the RBNZ’s goals, as the report indicates many companies are reducing staff numbers and holding off on investment plans. 

A perilous report

A recent report from The World Bank expects a sharp and long lasting economic slowdown. Informing this prediction is slower than predicted growth of the world economy which undershot predictions by nearly half, landing at around 1.7%. The World Bank suggests however that with the “right” government policies global employment can remain high.

Concerns over exploding fruit

Back in NZ, the local agricultural sector is worried after extreme weather from cyclone Hale has caused a considerable amount of harvests to be spoiled. The crop loss is set to push prices of locally grown produce even higher, particularly for berries. Unfortunately for us, berries don’t lend themselves to puns as well as eggs do in last week’s article.

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