Current economic difficulties being experienced by NZ households are largely a hangover from factors that inflated
spending and the housing market during the COVID-19 era boom.The remainder of 2024 looks to be challenging as employment prospects weaken but brighter signs are on the horizon for
2025.Weaker inflation could lead to interest rate relief and OCR cuts may come as soon as 2024.
Signs are looking brighter for New Zealand households in 2025, according to the ASB Household Sector Outlook published
today, with interest rate relief possible before the end of the year. “While the remainder of 2024 looks to be
challenging for households, the silver lining is that many of the difficulties being faced now set the scene for more
durable growth in 2025,” said ASB economist, Mark Smith.
Many of the current difficulties Kiwi households are currently facing are a hangover of the consumer spending and
housing market binge that occurred from late 2020 to early 2022 which artificially inflated the sector, according to the
report. This binge was a contributing factor behind the escalation in New Zealand inflation and the eventual 5.25
percent of OCR hikes by the RBNZ.
“Economy wide inflation pressures should continue to cool, enabling the RBNZ to provide interest rate relief to
beleaguered households. The chance of an OCR cut in 2024 is growing,” according to Smith, which “should help support
consumer sentiment and overall household spending.”
“The other positive is households are likely to base their future decisions on a more realistic outlook for household
incomes, house prices and borrowing costs. The 2025 recovery in household spending and the housing market is unlikely to
repeat the 2021 COVID-19 related surge, but it is much more likely to be durable,” Smith added.
The household sector is made up of individuals who provide labour, earn wages and consume goods and services. It is the
largest sector of the economy and therefore a key driver of economic activity.
“Cost increases facing households look to be easing as the pace of economic activity slows from a canter to a crawl,”
said Smith. “The 5.50 percent OCR has proved to be a circuit breaker that has sharply cooled housing market momentum,
house prices, household spending, and the demand for labour. These adjustments have largely played out, but the outlook
for employment and for labour incomes is likely to weaken as struggling corporate profitability and the weaker economic
backdrop results in more subdued hiring and lower wage increases.”
The full Household Sector Outlook, along with other recent ASB reports covering a range of commentary, can be accessed
at the ASB Economic Insights page: https://www.asb.co.nz/documents/economic-insights.html