The recovery that is happening is driven by the external sector - export prices are up 17 percent in the March quarter primarily driven by dairy price increases. Photo: RNZ
Economic recovery from the "recession the Reserve Bank made us have" is coming, but it's taking a lot longer than expected, Kiwibank says.
Its economists have updated their forecasts, and say the economy is likely to grow just 0.9 percent this year. Previously, they had expected 1.4 percent.
"The NZ economy crawled out of a deep, deep hole last year. It was a recession the Reserve Bank made us have. It's been a tough time for many businesses and households," senior economist Mary-Jo Vergara said,
"On a per capita basis, economic activity has shrunk by more than during the [global financial crisis]. Unfortunately, we may be crawling for a little longer."
Although there had been suggestions that the official cash rate (OCR) could be near the bottom of the easing cycle, Vergara said Kiwibank's economists thought it should be lowered to 2.5 percent, from the current 3.25 percent.
"The Reserve Bank's own OCR track signals a 60 percent change they go to 2.75.
"We're thinking one more cut to 2.5 percent will be necessary to actually see the economy recover and stimulated."
She said the economic recovery was happening "a lot slower" than had been expected.
"Part of that is because of what's happening overseas, the global uncertainty is really weighing on businesses and the forecast slowdown in global growth is really weighing on us here."
Reserve Bank Governor Christian Hawkesby. Photo: RBNZ
The recovery that is happening is driven by the external sector - export prices are up 17 percent in the March quarter primarily driven by dairy price increases.
"There's kind of a two-tier economy or two-speed economy developing... The reason we climbed out of recession was because of the primary sector doing so well and that momentum has kind of continued... but you'll see other sectors like construction or retail that are more interest rate-sensitive showing subdued activity."
But she said the export sector was exposed to global risks.
"The likes of the IMF and OECD have slashed their forecasts, just as we're starting to get back on our feet."
She said Kiwibank's previous house price forecast had been too high, because of the level of stock on the market. It was possible that price could rise by 2 percent or 3 percent by the end of the year, she said.
"The market is starting to show a bit of a sign of an uplift in the last few months but it's been very small, not the trend we would have expected by now."
She said the economy should start to feel better for households by the second half of this year, going into 2026.
"It's been pushed out a little bit further into the second half of the year. It's just a delayed recovery.
"We're still expecting growth this year just not as strong as we saw last year. But also a delayed timing to that and obviously what's happening overseas can risk further derailing that recovery, but hopefully in the second half of this year we see the housing market turn and that starts to support household consumption and the labour market.
"We're getting to the peak in the unemployment rate, which is good news but there is still a bit of softness there. But we expect employment growth to rebound at the end of this year."
She said because so much of New Zealand's wealth was tied up in property, a weak housing market was tough on the economy even though falling prices improved affordability.
On Friday it was reported the BNZ-Business New Zealand Performance of Manufacturing Index (PMI) slumped by 6.4 points in April to 47.5 - reversing all of its gains this year. A reading below 50 indicates contraction.
Vergara said the "steep" downturn in manufacturing was disappointing.
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