Last week<\/a>, Westpac economists revised their full-year growth forecast down to 1.9%, picking a contraction of 0.4% in the second quarter and 0.5% growth for the third quarter.<\/p>\nWestpac also picked unemployment to rise to 5.6% (from 5.4%) in the second and third quarters.<\/p>\n
It picked inflation to peak at 4.1% in the second quarter and had house prices falling by 0.9% for the calendar year.<\/p>\n
In its revised outlook today, ASB forecasts the annual inflation rate to peak at 4.2% in the second quarter before falling back to 4% and 3.8% in the remaining quarters of the year.<\/p>\n
It sees unemployment peaking at 5.5% in the second quarter and picks house prices to fall by around 1% a quarter before finishing the year flat.<\/p>\n
\u201cIf the war ends soon, the outlook will be rosier than what we lay out here, and we\u2019d love to be wrong because of that outcome,\u201d Tuffley said.<\/p>\n
Eventual retracement of energy costs, resultant spare capacity and the subdued domestic demand backdrop should ensure the return to sub-3% inflation by 2027, he said.<\/p>\n
But there was also the risk that higher near-term inflation could result in \u201ca prolonged inflationary headache if it filters through into broader wage and price setting\u201d.<\/p>\n
\u201cWe are keeping close tabs on inflation expectations which are assumed to initially tick up but then move towards 2% by the end of the projection period.\u201d<\/p>\n
ASB still expects the Reserve Bank (RBNZ) to hold the OCR at 2.25% for much of this year but cautions that the risks are tilted towards an earlier start to OCR hikes.<\/p>\n
\u201cThe RBNZ may have to lift the OCR above neutral levels (circa 3.25%) in 2027 if higher near-term inflation looks likely it will seep into broader wage and price setting,\u201d Tuffley said.<\/p>\n
Supply shocks were incredibly challenging to navigate, with an opposing skew of risks and elevated uncertainty underpinning the RBNZ\u2019s dilemma,\u201d he said.<\/p>\n
Incoming Governor Anna Bremen had been dealt a \u201ctough hand\u201d, he said.<\/p>\n
Despite the challenging outlook, ASB economists noted some silver linings.<\/p>\n
The dairy sector remains a bright spot, supported by strong global prices and the flow\u2011through of the payout from Fonterra\u2019s Mainland Group divestment.<\/p>\n
\u201cThis is a time for contingency and scenario planning rather than reliance on any single forecast,\u201d Tuffley said.<\/p>\n
\u201cIf the conflict eases sooner than expected, the outlook would improve quickly. But for now, households and businesses need to be prepared for a tougher, more uncertain period.\u201d<\/p>\n
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.<\/p>\n
Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter<\/a> \u2013 your essential weekly round-up of all the business news you need.<\/p>\n","protected":false},"excerpt":{"rendered":"That would result in weaker GDP with annual growth forecasts for 2026 reduced by around 1.6 percentage points,…\n","protected":false},"author":2,"featured_media":356139,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[18516,25286,138,1566,9961,10668,13488,219,72763,305,16572,111,139,425,69,13420,1881,8466,1361,122,698,17239,1533,23644,379],"class_list":["post-356138","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-18516","tag-asb","tag-business","tag-contract","tag-downturn","tag-economic","tag-economists","tag-economy","tag-forecasting","tag-have","tag-joined","tag-new-zealand","tag-newzealand","tag-now","tag-nz","tag-quarter","tag-recovery","tag-second","tag-that","tag-unlikely","tag-until","tag-westpac","tag-will","tag-winter","tag-year"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/356138","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=356138"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/356138\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/356139"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=356138"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=356138"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=356138"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}