The OECD’s latest economic outlook paints a mixed picture for the global and New Zealand economies.
Global Economic Outlook:
Slow Global Economy: The OECD forecasts a slow global economy in 2024. Despite a projected slowdown, there is an expectation that it will avoid a “hard landing.”
Global Growth Projection: The global growth is expected to be 2.9 percent in 2023, slowing to 2.7 percent in 2024, with a slight improvement to 3.0 percent in 2025.
New Zealand Economic Outlook:
Below Potential Growth: In contrast to the global outlook, the forecast for New Zealand is less optimistic. The OECD projects the New Zealand economy to grow by just 1.3 percent in 2024 and 1.9 percent in 2025.
Comparison with Potential Growth: The projected growth for New Zealand is substantially less than its potential economic growth rate, which was assessed to be 2.9 percent during the same period according to Treasury’s Pre-election Economic and Fiscal Update 2023.
Monetary Policy in New Zealand:
Cash Rate Decision: The Reserve Bank’s Monetary Policy Committee held the cash rate steady at 5.5 percent.
Factors Impacting Decision: The committee highlighted that demand growth had not eased as much as anticipated in the first half of 2023, partly due to stronger-than-expected population growth. While this eased supply constraints, there is a concern that it might increase the risk of inflation remaining above the target.
Potential for Rate Increase: If inflationary pressures were to be stronger than anticipated, the committee noted that there might be a need for an increase in the cash rate.
The global economic slowdown and New Zealand’s economic performance below its potential growth rate pose challenges. The monetary policy decisions, including the potential need for an interest rate increase in response to inflationary pressures, reflect efforts to balance economic stability.