It is a new year and Kiwis will be looking forward to a respite in 2023 from the cost of living crisis and rising interest rates, but before they get too optimistic economists are warning the worst could still be to come.
Last year was tough for households and businesses as the cost of living crisis continued to bite, with costs steadily rising partly because of low unemployment and staffing shortages and partly because of high inflation.
Annual inflation skyrocketed last year from 4.9 percent in the September 2021 quarter compared to a whopping 7.2 percent in the same quarter this year. It comes after years of low inflation.
Infometrics principal economist Brad Olsen told Newshub 2023 will be a more challenging year for the economy, characterised by persistent and pervasive inflation that's going to put a lot of pressure on households.
"I think you will see households are coping with and managing the higher cost of living in 2023, just purely through necessity. They will find a way, just as we found our way through COVID-19 so far," Olsen said.
The worry is, some of the more challenging areas of inflation are also the areas having the greatest influences on households, like food and fuel prices, Olsen said.
"I think there are going to be some tricky trade-offs next year for households over how they combat inflation, how they combat higher interest rates, how they effectively make their household budget work," he said.
But one person who had a rosier outlook on inflation was independent economist Shamubeel Eaqub who believes it'll decrease from its current 7.2 percent.
"I think inflation will come off a lot, particularly in the imported prices. Around the world, we are seeing commodity prices come off. We're seeing manufacturing prices coming off around the world. So we're going to be importing a lot of deflation next year, whereas we've been importing a lot of inflation this year," Eaqub explained.
He told Newshub inflation will be less predictable going forward.
"Are we completely out of the woods? No, there are still some risks because we still don't have enough people to work. We still don't have enough people to fill the vacancy," he said.
"So those kinds of things will kind of, still be lingering … I think it's going to be less predictable going forward for the foreseeable future. It's not just about the story of 2024. I think it's the story of the coming decades."
Will New Zealand head into a recession after the Reserve Bank's grim admission?
One big worry Kiwis will have in 2023 is New Zealand slipping into a recession.
In June, StatsNZ announced gross domestic product (GDP) had fallen 0.2 percent between the start of January and the end of March this year, raising fears of a recession.
But Stats NZ said in September and December there was a 1.7 and 2.0 percent lift in GDP during the last two quarters of 2022, meaning a technical recession - two consecutive months of negative growth - was avoided.
But those fears have grown again when the Reserve Bank (RBNZ) hiked the Official Cash Rate (OCR) by 75 basis points in November - the largest-ever rise - to increase interest rates and hopefully curb inflation.
RBNZ Governor Adrian Orr later admitted the RBNZ was purposely engineering a recession to slow spending and bring inflation under control.
But Olsen wasn't so confident New Zealand would head into a recession, although he said it might feel like one.
"I think there's always a chance if you will, but in fact, we're not forecasting a recession in 2023 and that's primarily because we are still expecting that tourism activity - which is recovering from effectively nothing in terms of international tourism," he told Newshub.
Despite not believing New Zealand would be hit by a recession, Olsen said it won't be an easy year.
"Let's be real, it's still going to be a tough ride. We expect that even though we might not see a technical recession, it could feel very recession-like," he said.
"You could sort of experience a bit of a shadow recession as economic growth starts to slow, but we do think there are enough good, strong economic foundations across the New Zealand economy that we'll be able to move through at this stage."
Eaqub said if Kiwis are "sitting on their hands" and change their spending habits it'll have a negative impact on the economy.
"It's around spending behaviour, so you step down from the Watties to the Pams or instead of going to restaurants you have takeout or it could be that you delay investments or purchases of big things," Eaqub said.
"When everybody's kind of sitting on their hands and this collective sitting on hands is more damaging than a short, sharp shock."
Eaqub warns Kiwis' quality of life will decrease next year as inflation continues to bite and New Zealanders get less bang for their buck.
"We are spending more money for less because of inflation. We're trading down, so our quality of life and quality of spending and the satisfaction that we get from it is less. So I think that's going to be the feature of next year," he told Newshub.
Is 2023 the year of job losses?
The unemployment rate in New Zealand is currently 3.3 percent for the September 2022 quarter, according to Statistics New Zealand.
One fear many Kiwis will have is if the economy slows in 2023, it could lead to major job losses.
But Eaqub doesn't believe that will occur as businesses are finding it very difficult to recruit new employees.
"Job losses are, of course, really damaging for households because it affects your income and all that kind of stuff and to lose your job, even if you qualify for the benefit, the drop in income might be anywhere from 25-70 percent," he said.
"So job losses are a really big risk for people, so that's where the rubber hits the road for most people in terms of the economy and when the economy is not doing well, you can see job losses."
