The New Zealand government’s latest budget report showed that economic growth exceeded expectations, reducing the risk of a recession, which may prompt the Reserve Bank of New Zealand to tighten monetary policy.
The RBNZ will consider revised forecasts that foresee stronger growth, longer-lasting inflation and lower peak unemployment. The Reserve Bank of New Zealand may withdraw its recession forecast for 2023 as reconstruction spending and a surge in immigration boost demand. But the RBNZ could also adjust its view on the labor market as immigration increases labor supply (a source of downward pressure on wages).
Looking ahead, we will see rising unemployment, weaker growth and easing inflation prompt the RBNZ to cut interest rates in the fourth quarter of 2023.
