There could be good news on the horizon for homeowners, but they will have to wait for it, with one of New Zealand's leading banks predicting there will be mortgage rate relief next year.
ASB is predicting the Reserve Bank (RBNZ) will cut the Official Cash Rate (OCR) in August next year.
It comes after Statistics NZ revealed last week that New Zealand's gross domestic product (GDP) fell by 0.3 percent from the June quarter, with the government department noting the decline was driven by goods producing industries.
The bank believes the latest GDP figures and revisions show the economy has been losing momentum at a greater extent than envisaged.
This has seen ASB bring forward its forecast of when the RBNZ will cut the OCR.
"We have brought forward our forecast for the first OCR cut to August 2024, six months earlier than our previous view," ASB said in its economic note.
"We think the recent GDP release was significant: it showed momentum in the economy is grinding to a halt more rapidly than anticipated. We expect weakness will continue into 2024."
The bank said if the economy continues to stall, inflation pressures are likely to reduce quicker than anticipated.
Inflation is currently sitting at 5.6 percent - more than double the RBNZ's target - which ASB admitted was high, but believes there are some positive signs.
"We are also seeing encouraging signs in recent monthly pricing data that show inflation is falling slightly quicker than the RBNZ had recently been expecting," the bank said.
"And while there will be pockets of migration-driven concern for the RBNZ, such as rents and any potential rebound in construction costs, we expect that by the second half of next year the inflation outlook will be comfortable enough for the RBNZ to cut."
The economic landscape has changed significantly
Leading up to the GDP announcement, most economists expected it to remain relatively flat for the September quarter.
But with the data weaker than expected, the bank said economic momentum has been a lot slower than previously thought, particularly for 2023.
"We have revised down our GDP outlook, on the basis that momentum will remain weaker than previously thought," the bank said.
Even with migration in New Zealand surging, GDP has still fallen over the last year.
"Looking at per-capita GDP, the pressure of tight monetary conditions is evident, with per-capita GDP already down 3 percent over the past year and likely to eventually exceed the 4 percent decline New Zealand experienced during the Global Financial Crisis."
ASB believes the labour market will soften at a "faster pace", which will slow wage growth quicker and reduce cost pressures.
This means the ability of businesses to keep passing on various cost pressures will get harder while demand remains weak, the bank said.
"The new Government has made it clear it is going to exercise considerable fiscal restraint, which the RBNZ will increasingly be able to bank on to help it contain inflation," ASB said.
"The general message from monthly pricing indicators suggests that inflation is undershooting the RBNZ's expectations in the short term.
The bank believes the RBNZ is already putting enough squeeze on that it won't need to lift the OCR further and will find itself cutting the OCR much sooner than it has been expecting.
ASB's prediction is in line with that of BNZ.
BNZ's chief economist said on Tuesday New Zealand will start seeing cuts to the OCR around the third quarter of next year.
