ASB economists update OCR forecast

by Roxanne Libatique23 Feb 2021

Economists’ official cash rate (OCR) forecast continue to change as New Zealand’s economy recovers – with ASB economists now expecting the Reserve Bank of New Zealand (RBNZ) to begin raising the OCR from its current level of 0.25% as early as August 2022, a full year earlier than was predicted in the November ASB Quarterly Economic Forecast.

ASB chief economist Nick Tuffley said in the bank’s latest Quarterly Economic Forecast that the RBNZ also wants to be confident that the economy is heating up, the labour market capacity pressures are firming, and inflation settles above 2%. However, he clarified that an OCR increase would not occur until the country’s border opens.

“New Zealand has so far come through this in a way that is astonishing compared to predictions from 2020. However, as we saw last week, things can change quickly, and we are going to have to keep on rolling with the punches,” Tuffley said.

Read more: More OCR cuts unlikely – Kiwibank economists

Tuffley expects most economic activity growth over the first half of 2021 to come from the construction sector as it has lifted above pre-pandemic levels.

“The housing market remains undersupplied, and low-interest rates and rising house prices have stoked construction appetites with building consent demand surging in the latter months of 2020,” he said.

Predictions of a vaccine-led recovery and further economic stimulus have also pushed banks to re-evaluate their forecasts.

“The New Zealand economy has proven to be more resilient than expected over 2020, but we remain cautious on the pace of growth over 2021 and 2022. We see growth prospects being relatively muted over 2021, with the closed border and weak global growth limiting our export performance,” Tuffley said. “The government hopes to roll out vaccinations over the second half of the year, but there remain risks and uncertainties, with potential for production delays and COVID-19 mutations reducing vaccine effectiveness.”

“In our view, it will be some time during 2022 before the New Zealand and global economies properly enter ‘recovery mode’ and allow for above-average rates of GDP growth,” Tuffley concluded.

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