The high interest rates have restricted spending activities all over the country
High inflation and interest rates have caused the economy to be constrained as spending activity has been restricted all over the country, Infometrics’ latest monitoring of regional economies found.
In the December 2023 Quarterly Economic Monitor, it was found that the economic activity in the last quarter of 2023 was down 0.2%pa year-over-year.
“Economic pressures are mounting across New Zealand, with higher interest rates restricting spending activity across the economy,” said Brad Olsen, the chief executive and principal economist of Infometrics.
Olsen said that the household spending growth was below the rate of inflation. This meant that there were lower sales volumes. Given that the growth of the population had been increasing, the spending per person had considerably decreased.
“Although inflation is still too high, progress in bringing it under control is clearly being made by the Reserve Bank, with the headline inflation rate declining,” Olsen said.
The chief executive further stated that the weaker economy will continue to affect the demand for goods and services. It will also limit pricing pressures since businesses were looking to preserve their sales activity as well as cash flow.
“The primary sector also remains under pressure, which will hit regional economies over 2024. Although the estimated dairy pay-out in the current season continues to improve, Infometrics estimates the aggregate pay-out will still be $2.6b lower than two seasons ago,” Olsen said.
With the currently less stretched labour market, there is a notable difficulty in finding jobs despite population growth being driven by high net migration.
“Job ads are down 24%pa, and are now sitting 13% below pre-pandemic levels, as businesses limit
their hiring in the face of weaker economic activity,” Olsen said. “Although regional jobs growth has been solid, employment hasn’t kept pace with population growth, and we expect the unemployment rate to rise further throughout 2024.”
