Soaring interest rates and weak real income growth will result in a more pronounced slowdown in economic activity in both countries than most anticipate. With New Zealand’s central bank determined to push the economy into recession, we’re now forecasting a peak-to-trough fall in output of 1.5%. By contrast, we think that Australia will narrowly avoid a recession as the RBA should get on top of inflation before long. With unemployment rates set to surge and supply shortages diminishing, we expect inflation to fall more sharply than central banks are anticipating, paving the way for renewed policy easing from the end of next year.
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