Top economist warns mortgages rates unlikely to drop despite country dipping into recession

  • 16/06/2023

New Zealand is officially in a recession after gross domestic product (GDP) fell 0.1 percent in the first quarter of the year. But one of the country's top economists is warning it doesn't mean homeowners are about to get some relief from soaring mortgage rates.

Stats NZ data, released on Thursday, revealed GDP was down 0.1 percent quarter-on-quarter, largely contributed by a decline in business services.

The Government is blaming serious weather such as Cyclone Gabrielle and the Auckland floods for the recession, while the National Party blamed the Government. 

But ASB chief economist Nick Tuffley said there are several reasons the economy shrunk, including inflation and cost of living. 

"The economy has been under pressure as interest rates have risen and the cost of living has gone up," Tuffley told co-host Ryan Bridge on AM. 

"The floods won't have helped but look, it was a reasonably broad base decline."

Tuffley said we are going to see "patchy" economic growth over the rest of the year.

But for homeowners hoping the news of the country in a technical recession will result in the Reserve Bank (RBNZ) easing interest rates - they may have to wait a bit longer, Tuffley said. 

The RBNZ has been steadily increasing the Official Cash Rate (OCR) since the end of 2021 in the hopes of dampening inflation. 

But just because spending is down, doesn't mean those increases are going to stop any time soon, Tuffley said. 

He said at the moment the RBNZ is going to be waiting to see what happens with inflation.

"The reality is we do need interest rates to sit at a fairly high level to get inflation back from nearly seven percent to somewhere between one and three percent, which is their (RBNZ's) job." 

Watch the full interview above.