Signals look good for 2025


If Kiwibank economist Mary Jo Vergara knows her stuff, interest rates will fall later this year. Senior writer Mary Anne Gill listened in on her predictions.

Attendees went into the business card draw for prizes from Kiwibank customers. Lisa Gordon from The Little Loft was one lucky winner – she won two bottles of Kaipaki Milk. Photo: Mary Anne Gill.

Business and consumer confidence might be weak and the economy in slow down, but it is all part of a plan, says Kiwibank senior economist Mary Jo Vergara.

“It is all by Reserve Bank design and it’s intended to get inflation back under control,” she told Waikato Chamber of Commerce’s After Four function in Kiwibank’s Hamilton headquarters in Union Square last month.

“It’s all about inflation at the end of the day.”

Vergara was guest speaker and told a packed audience, 2024 was a year of slow growth but an improvement on 2023.

“2025 will be better.”

By November, she and Kiwibank’s economists expect the Reserve Bank to make a crucial call and finally cut the official cash rate from 5.5 to 5.25.

“It’s all about inflation at the end of the day.”

“When they decide to go, it will be to three per cent,” she said.

In her explanation as to why, Vergara said Purchasing Managers’ Index indicators – the prevailing direction of economic trends in the manufacturing and service sectors – were starting to move into positive territory in countries like China and the United States.

Watching the United States economy evolve had been “incredibly fascinating,” she said.

“They’ve had just as much inflation as us, maybe a little bit more, they’ve been able to get it down north of nine per cent, where it is now at three per cent, without having a recession and without a deterioration in their labour market.

“This is a signal for 2025 – it should be better (here).

“As these expectations start to turn, we should see the market pick up again.”

But she warned there were tailwinds to watch out for such as migration and regulatory changes. Others were council rate rises, increased insurance costs and unemployment, particularly in places like Wellington where there are public service layoffs.

Regulatory changes include the Bright Line property rule – a way to tax financial gains people make when they buy and sell a house for income – have reduced from 10 years to two years from July 1.

Interest deductibility will be fully restored by this time next year and the loan-to-value ratio restrictions eased.

That should see investors come back into the property market and they were expected to test the waters a bit more come spring, said Vergara.

New Zealand’s inflation had gone from 7.3 to 4 per cent easily but getting that down to 2 per cent, was going to be tougher.

Hence the Reserve Bank was unlikely to change the official cash rate until November, or even February.

The bank had little influence over soaring local government rate rises and insurance increases.

“We still see inflation going below 3 per cent this year. We do think we will get back to that 2 per cent target; we see inflation back below 3 per cent by the end of this year and that should really open up the Reserve Bank to rate cuts.”

If you walk in Wellington now, you can feel that anxiety in the air

They would come a year earlier than Kiwibank economists had earlier predicted.

Public service layoffs would have an impact on the unemployment rate – expected to level out at five per cent nationally but even higher in Wellington where businesses are already closing.

“If you walk in Wellington now, you can feel that anxiety in the air,” said Vergara.

But given all that, 2025 is expected to see an improvement in the economy and a boost for the flagging property marked.

Vergara joined the Kiwibank economics team in 2019 and has a keen interest in how the Kiwi economy fits within the global landscape.

Her research ranges from macroeconomics to environmental economics to New Zealand’s economic history. She is skilled in quantitative analysis including statistical and econometric modelling.

Prior to joining Kiwibank, she worked in economic consulting as a research analyst following five years of university study where she obtained a master’s in economics at Auckland University.

Kiwibank senior economist Mary Jo Vergara during her presentation to Waikato Chamber of Commerce. Photo: Mary Anne Gill.


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Mary Anne Gill

Putāruru-born Mary Anne Gill is one of Waikato’s most experienced communications and public relations practitioners. She has won several national writing gongs including three times at the Qantas and twice at the Voyager media awards.

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