Paying for the economic hangover
The bank’s economists expect that, in total, the economy will contract by more than 2% early next year – more than half the size of the 2008/09 decline.
In its just released quarterly economic forecast, the ASB says the slowdown can be put down to the overheating of the economy in response to the pandemic kitchen-sink stimulus. High inflation and a stretched labour market are the clearest symptoms of this overheating.
ASB chief economist Nick Tuffley says the economy’s contraction will continue to be domestic-led. The squeeze continues to come on households, particularly through higher debt-servicing costs.
He says the weakness in the property markets is also a factor, particularly the sustained decline in house prices. The drop is starting to flow through to construction and even though disaster recovery will bolster construction, the underlying headwinds are likely to dominate.
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