With interest rates at a 50-year low and people continuing to flock to New Zealand at record levels there is little risk that the New Zealand economy will experience a recession in 2016.
2016 is set to be another bumpy year for New Zealand's economy, with dairy prices starting on another soft note and signs that the housing market is cooling, but strong immigration levels and low interest rates are likely to support demand.
The RBNZ cut the cash rate by 100 basis points in 2015 as inflation ran below the bank's 1-3% target range for at least the first three quarters and most likely in the last quarter also, and as low global dairy prices continued to dampen export takings. On December 10 the RBNZ made its final Official Cash Rate (OCR) cut for the year and signalled that further easing was off the cards, at least for now.
Last month RBNZ Governor Graeme Wheeler said that inflation is expected to be within the bank's target range from early 2016, "as earlier petrol price declines will drop out of the annual calculation, and the lower New Zealand dollar will be reflected in higher tradables prices."
While Wheeler also said in December that the bank expects to reach the 2% inflation target midpoint at current policy settings, he also left the door ajar by saying the bank would be prepared to cut again if "circumstances warrant".
Higher immigration has been a double-edged sword for New Zealand, providing greater demand to the economy but also adding more workers to the labor market at a time when job growth was weak.
Economists see this trend continuing in 2016, with strong immigration showing no signs of letting up. Whether or not firms see the need to hire more staff will depend on how ripe the investment environment is.
