Westpac forecasts recession in late 2023, unemployment to rise to 5.2 percent

The New Zealand economy is in for a few years of a "broader slowdown" in growth and is expected to plunge into recession in late 2023, a new report says.

Westpac's quarterly economic overview for February said the economy was at a turning point and high inflation was eating away at households' spending power.

The report said rising interest rates were now billowing through the economy.

New Zealand's annual rate of inflation was at 7.2 percent. In response to sky-high consumer prices, the Reserve Bank has officially pushed up the official cash rate from 0.25 percent in August 2021 to 4.75 percent now.

Westpac is predicting rates to rise by another 75 basis points in the coming months.

About $160 billion worth of mortgage debt was up for refinancing this year, meaning there was still "a lot of cash flow to get siphoned out of this economy", independent economist Cameron Bagrie told AM.

"[It's] a pretty stock standard playbook coming out of Westpac… everybody's throwing around the dreaded 'R'-word," Bagrie said of the report. 

"I like to call it a bit more of a 'reset' because that's got a few more positive connotations in regard to how we can think about things over the next two to three years as well.

"But to get the inflationary thief back in jail, you've got to dish out a bit of economic pain and, unfortunately, the economic pain comes in less growth… retail spending cools and unemployment moves up."

Cameron Bagrie.
Cameron Bagrie. Photo credit: AM

Westpac predicts unemployment will peak at 5.2 percent by 2025. Bagrie said 5 percent unemployment seemed to be the "ballpark number" most economists were forecasting.

"Taming one economic problem, unfortunately, is creating other economic problems on the other side - so inflation is not a great story to get back under control." 

The global economy was also forecast to see slower growth over the next few years but the likes of Australia were expected to avoid a technical recession, Westpac said.