But it's not all doom and gloom, economist says
The average household budget will likely increase by about $80 a week due to higher debt servicing charges by the end of the year, according to a new ASB report.
ASB said some Kiwi households would be subjected to considerable pressure, with more than half of all loans tipped to be repriced at much higher interest rates over the next 12 months.
Mark Smith, ASB economist, said debt servicing costs would likely rise again to $100 per week by the end of 2024, with some heavily indebted households forking out hundreds more a week, RNZ reported.
It was not all doom and gloom, however, as “the housing market will eventually recover as it always does,” Smith said.
“It’s just a matter of consumers for now battening down the hatches, living within their means and just remaining as optimistic as they can in the current environment,” he said.
For now, much depends on how the housing market reacts to higher debt servicing costs.
Smith said the Reserve Bank could lift the OCR above the forecast peak rate of 5.5% if it still failed to cool spiralling prices.
“A return to a lower inflation environment will eventually make life much easier for households,” he said. “But in the interim, sizeable OCR hikes will mean higher debt servicing costs that will place some household budgets under considerable pressure. Discretionary spending will be hard hit and we foresee recessionary conditions for the household sector in 2023.”
He said a decline in discretionary spending will also impact businesses, particularly those with high debt levels.
“Household spending is the bulk of economic activity. So that's an important flow through,” he told RNZ.
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