New Zealand struggles to regain economic mojo

For decades, New Zealand has relied on inflating the housing market to engineer a recovery during downturns, but the playbook has failed this time, putting policymakers in a quandary just as the Middle East war adds a new layer of uncertainty.

- Stella Qiu, Reuters

Even after the Reserve Bank of New Zealand aggressively slashed the benchmark interest rate from 5.5% to 2.25%, house prices still languish some 20% below their pandemic peak, dismantling the wealth effect that long anchored the economy.The war compounds the problem, with oil price inflation pushing up borrowing costs globally, potentially forcing the RBNZ into a more hawkish stance even with the economy in the worst shape since the global financial crisis. New Zealand’s borrowers are already being squeezed by higher market interest rates and anaemic demand, making any recovery in the housing market — once one of the world’s most expensive — elusive, said Nick Goodall, head of research at Cotality NZ.

“It's sort of been thrown into question now with all the global uncertainty,” Goodall said, noting he had previously expected some pickup in the housing market this year as prices, mortgage rates and salaries found an equilibrium.