Interest rates are rising and a recession is looming.
A year after an election, the Reserve Bank on Wednesday announced devastating news for Jacinda Ardern’s government that underscored the challenge as it seeks a third term.
The headline was the 75 basis point hike, the bank’s first-ever triple hike as it wages war on generationally high inflation.
From a record low of 0.25% last October, the official exchange rate now stands at 4.25%, with an expected peak of 5.5% expected to reach the end of next year, precisely. when elections are scheduled.
More chilling numbers were found in the pages of the Reserve Bank’s November monetary policy statement.
Inflation remains higher for longer and will not return to the target range until 2024.
Unemployment rises earlier, rising from a near-record low of 3.3% to over 5% in 2024.
House prices – already down 11% from their peak last year – will continue to fall 9% next year.
And then there’s the big deal: six consecutive quarters of negative or flat growth from mid-2023 that will push New Zealand back into recession.
Speaking outside Parliament after a heated Question Time, Finance Minister Grant Robertson acknowledged that it would be “a difficult year for many New Zealand households”.
“The global economic forecast reflects how difficult 2023 is going to be,” he said.
Opposition leader Chris Luxon walked out of Question Time accompanied by his deputy, finance spokeswoman Nicola Willis, saying “a lot of New Zealanders are going to be feeling very stressed tonight”.
“And they’re going to feel more stressed over the next few months when they go to fix their mortgages,” he said.
Mr Robertson was keen to portray New Zealand as caught in a global economic storm, referring to an IMF statement that many ‘countries will be in recession or they will feel like they are in recession’.
However, the Reserve Bank’s repeated references to ‘widespread labor shortages’ allowed Ms Willis to hit Labor for their slow immigration.
“The Reserve Bank is clear that acute labor shortages are now at the root of inflation. The government has had several months to adjust its immigration parameters. We implore them once moreover, fix this,” she said.
The bleak outlook has had ramifications for the National Party, which has promised billions in tax cuts for Kiwis despite their inflationary effect.
Mr Luxon announced the removal of a key part of his platform: the removal of the top tax rate of 39%, which effectively gave freebies to New Zealanders earning over NZ$180,000 (A$167,000).
“We would like to give people a tax break but … the 39 cent tax rate in particular, that’s something I really want to think about,” he said.
“The situation has changed a lot. A lot of time.”
The policy reversal could also be bad news for Labour, depriving them of a key line of attack on National as it heads towards a late 2023 poll.
If there’s any light for Ms Ardern’s party, it’s that the Reserve Bank has missed the mark with previous forecasts – the most recent tipping a cash rate peak of 4.1% in August , which has already been exceeded.
“We’ll see where the Treasury forecast ends up at the end of the year,” Robertson said.
The Deputy Prime Minister went on to outline what could be Labour’s best line in 2023, recalling the COVID-19 policies that won them a landslide victory in 2020.
“We have been supporting New Zealanders through a very difficult time with COVID-19. They know we have their back when things are tough,” he said.
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