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Rewind On Recession

A big turnaround in net migration has prompted Westpac to change its view on the risk of a recession.

By: Sally Lindsay

28 June 2023

Westpac has made the bold assertion the country no longer needs to sink into recession.

This comes after it predicts the OCR will now rise to 6 per cent from the Reserve Bank’s prediction of 5.5 per cent.

A big turnaround in net migration has prompted Westpac’s change in view, but means it sees more inflation pressure in the next few months.

Westpac chief economist Kelly Eckhold says the big increase in population of an extra 65,000 in the past year is going to add to demand for housing, durable goods and add general support to the retail sector.

Downward Pressure

One implication, he says, is that house prices are not going to drop much further after significant falls over the past 18 months.

“They are bottoming out and while house prices will not race away we don’t see the downward pressure that has been prevalent for a while.”

Eckhold says it is a bit tricky for the Reserve Bank in the sense that it was probably expecting significant downward pressure from the interest rate increases in the past year.

“This surge in migration is going to counteract that as will the flattening of house prices.”

Interest Rates

“The upshot is we think the Reserve Bank is going to have to put interest rates up a bit more by increasing the OCR to 6 per cent and keep it there until about May next year,” he says.

By then the RBNZ will see some tangible signs that inflation pressures are falling and the economy will be coming off. He says the bank can then be more confident inflation will be back inside the 1-3 per cent target range in a reasonable time frame.

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