16 Mar 2023

Kiwibank predicts shallow recession this year

9:31 am on 16 March 2023
Kiwibank chief executive Jarrod Kerr

Kiwibank chief economist Jarrod Kerr is predicting a shallow recession this year. Photo: Supplied / Gino Demeer

Economists are expecting a mild contraction for the economy in the fourth quarter of 2022.

The GDP figures will be released on Thursday morning, and may give a greater idea of any impending recession.

Kiwibank is predicting a shallow recession this year, and its chief economist, Jarrod Kerr, said a contraction over the fourth quarter was expected.

That was partly payback from a strong result in the third quarter but also pointed to what was to come, he said.

"We're seeing a slow down in household spending, we're seeing a slowdown in building work done and we've also seen a slowdown in manufacturing volumes so things are cooling as we headed into this cyclone."

The Reserve Bank was trying to reign in demand to meet supply in the economy or to reduce inflation pressure, he said.

"I think we're likely to see quite a sharp decline in household spending, I think the interest rates rises we've seen to date are working and they're working their way through the economy in a way I think we will see a big reduction in inflation pressure later this year."

The damage from Cyclone Gabrielle and subsequent clean-up and rebuild added to price pressures, he said.

"I do think globally central banks are winning the battle on inflation though."

But there was currently a lot of market uncertainty with concerns that a potential banking crisis was unfolding, he said.

That meant central banks needed to concentrate on improving market liquidity and conditions rather than "just blindly hiking" interest rates, he said.

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