New Zealanders battling the cost of living crisis aren't out of the woods yet with ASB predicting a tough end of the year with high inflation and interest rates to keep the pressure on.
But ASB's latest Economic Forecast released on Tuesday wasn't all doom and gloom, saying there are early indications some things may be nearing a turning point.
New Zealand is currently in a technical recession after Gross Domestic Product (GDP) dropped 0.1 percent quarter-on-quarter, while inflation is remaining stubbornly high at 6 percent.
The price of food is another unwanted headache, with Stats NZ releasing figures earlier this month showing food prices remained 9.6 percent higher last month than they were in July last year.
Then adding to all this, thousands of Kiwis are in the midst of or will re-fix their mortgages this year from a low rate seen during COVID-19 of around 2-3 percent to the new rates of around 6-7 percent.
ASB is predicting the New Zealand economy to be flat until early 2024 before picking up momentum next year.
ASB Chief Economist Nick Tuffley said after officially hitting a recession earlier this year, the economy will likely dip in and out of contraction for the rest of 2023 before gaining momentum next year.
"We are seeing some bright spots, particularly in the housing market. It looks like that market is stabilising and we expect prices will start creeping back up in the coming year," he said.
"So the first part of the economy to get hit hard by rising interest rates also looks like it's the first to find a base and recover.
"The Reserve Bank will be keeping an eye on this, and all indications point to headline inflation dropping and wage growth having peaked, however, it's still early days so they'll be being cautious. Overall things are going in the right direction but it's a slow journey."
ASB's report also predicted the Reserve Bank of New Zealand (RBNZ) to hold the Official Cash Rate (OCR) until the second half of next year before making cuts.
Inflation fell slightly in June to 6 percent - the lowest since 2021 - but is still expected to remain at or above 5 percent this year before falling to around 3 percent in the second half of next year, according to the report.
"Interest rates look like they're on hold for now but it's going to be a slow grind down for inflation going forward," Tuffley said.
"The Reserve Bank will want to be sure that inflation will get back below 3 percent in the second half of 2024 but getting that confidence will take time and high-interest rates will be needed for a while yet to ensure inflation does indeed fall.
"We expect the Reserve Bank will wait until around August next year before cutting the OCR."
Meanwhile, a subdued global economic outlook is also having an impact on New Zealand. It's resulting in lower commodity prices and less demand for our key primary exports.
Tuffley added a weaker-than-expected post-COVID lockdown rebound in China is also having an impact.
"Generally, food commodity prices have been softening. Part of that has been driven by slow global growth this year and the other thing from a New Zealand perspective is that China isn't rebounding as much as expected. They're missing in action when it comes to dairy auctions as well which is pushing down dairy prices. So, from a farming point of view, there are a lot of challenges - weather, cost and global demand in particular," he said.
"We're in for a much softer season than we have just had, and the overall outcome of this year's extreme weather events is still not clear."
Employment growth has remained strong over the past few years and a surge in immigration this year will further support the country's labour market, with the Economic Forecast predicting net immigration inflows of about 70,000 this year.
"There has been an uptick in the number of New Zealanders moving overseas but this has been more than balanced out by a massive rise in those arriving in the country, with the new arrivals younger than leavers and likely to be adding strongly to the workforce," Tuffley said.
"This is really helping to fill skill shortages, and because employers have choice, we're seeing early signs that wage growth is peaking and coming down. It's positive that despite the economy being in recession, the job market is holding up really well."
"It is going to be a slow recovery for the economy overall but we are definitely seeing some signs that things are turning."
