The Reserve Bank of New Zealand has maintained the official cash rate at a restrictive level of 5.50%. New Zealand’s economy is in a deep per capita recession. Real per capita GDP has collapsed by 4.3% from its late 2022 peak, following six consecutive quarterly declines.
The leading composite PMI suggests that New Zealand’s aggregate GDP fell heavily in Q2. Consumers have pulled back significantly, as evidenced by a sharp decline in real per capita retail sales. House prices have plummeted by 16.5% from their peak.
Auckland and Wellington have experienced drops of 22.1% and 24.7%, respectively, which is hurting New Zealand’s labor market.
Reserve Bank keeps cash rate high
Job advertisements are decreasing, and the number of applicants per job ad has surged to all-time highs. New Zealand’s mortgage rates have seen one of the steepest increases in the developed world, surpassing Australia’s rise. Unless the Reserve Bank starts an easing cycle, average mortgage rates in New Zealand are expected to continue rising.
Currently, 37% of outstanding mortgages in New Zealand are fixed-rate and expire in the second half of this year. Another 26.5% of mortgages by value will reset in the first half of 2025. New Zealand’s banks are anticipating that the Reserve Bank will cut rates before the end of the year.
They have started lowering their fixed mortgage rates in anticipation. If the Reserve Bank fails to act, the New Zealand economy risks sinking even deeper into recession.
