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Birds Eye View

Summer 2023

Special feature – The economics of climate change and natural disasters

1.0 The Front Pages

Summer, a time for sun, family, relaxing, and long lazy BBQs. However, this year has unleashed a series of extreme weather events unparalleled in our recent history. Coupled with the cost of living pressures, it has not been a carefree summer for many Kiwis.

Cyclone Gabrielle resulted in the most significant weather event Aotearoa New Zealand has seen this century, with the severity and damage not experienced in a generation, resulting in tragic losses and devastating outcomes.

With so many communities still without regular electricity, clean water, communications, and warm meals, the full scale of the cyclone’s impact, and the recovery effort required, remains unknown. However, we know from previous natural disasters that it will be a long recovery ahead, particularly in Hawke’s Bay, Gisborne, and the East Coast. In those regions, businesses in the primary sector have sustained widespread damage to farms, processing and pack house facilities and infrastructure, as well as losses across the horticulture, vegetable, forestry, stock, and feed industries.

Long road to recovery and the beginning of a difficult few years

In November 2022 the Organisation for Economic Co-operation and Development (OECD) updated its outlook for Aotearoa New Zealand. Of course, these figures do not include the impact of the flooding and Cyclone Gabrielle. We expect that these numbers will be adjusted in the next update. However, in the November update, the OECD was already pessimistic about the Aotearoa New Zealand economy, and expected Gross Domestic Product (GDP) growth to slow to one percent in 2023, before increasing slightly to 1.2 percent in 2024. Household consumption was expected to weaken with lower employment growth. 

The OECD expects that tighter credit conditions and weakening demand will weigh on business investment and unemployment will increase. However, the Reserve Bank of New Zealand’s (RBNZ) efforts to reduce inflation through monetary policy are expected to see inflation fall throughout the projection period. It remains to be seen how much the damage and clean up after Cyclone Gabrielle might impact inflation and the inflation targets, especially in the short term. 

Treasury optimistic for 2023, but less so for 2024

In its Half Year Economic and Fiscal Update (HYEFU), released in December, Treasury was more optimistic for Aotearoa New Zealand’s performance in 2023, expecting GDP to grow by 3.5 percent in the year to June. Unemployment was expected to increase slightly from 3.3 percent in 2022 to 3.8 percent. The second half of the 2023 calendar year, when over half of all mortgages will roll over onto what will be higher interest rates, is when the response to inflation will take its toll. The HYEFU forecasts for the 2024 government financial year, which includes the last six months of 2023 and the first six months of 2024, expect GDP growth to fall by 0.3 percent and unemployment to reach 5.5 percent. However, there is some good news on the horizon, with optimistic forecasts for 2025, save any other unforeseen events. GDP is forecast to recover by 2.1 percent, and unemployment is expected to begin falling from the 2024 peak.

The poor outlook is not limited to Aotearoa New Zealand

In its January 2023 world economic outlook update the International Monetary Fund (IMF) expects that 2023 will see global growth fall from an estimated 3.4 percent in 2022 to 2.9 percent in 2023. This is forecast to be the low point before the global economy recovers from the lingering effects of COVID-19, and the higher interest rates imposed to get inflation under control take effect. GDP growth is expected to rise to 3.1 percent in 2024, but will remain below the 3.8 percent average of 2000 to 2019.

We are not alone in our fight against the rising cost of living. Central banks across the globe have increased cash rates. Coupled with the ongoing Russia Ukraine war, global economic activity is going to be subdued. More than 90 central banks have lifted interest rates in response to inflation. Although this is having the desired effect of lowering global consumer demand and reducing pricing pressures, it is also reducing demand for Aotearoa New Zealand’s key commodity exports.

Overall, the OECD considers that the efforts of central banks have been effective and have had the intended impact of constraining demand and the speed of price rises. The OECD expects global inflation to fall from 8.8 percent in 2022 to 6.6 percent in 2023, and 4.3 percent in 2024.

Interest rates to increase again, and then again soon after

Speaking of actions by central banks, on 22 Feb 2023 the RBNZ announced a further 50 basis point increase to the Official Cash Rate (OCR), increasing it to 4.75 percent. In his announcement, Reserve Bank Governor, Adrian Orr, noted that although there are early signs of price pressures easing, core consumer price inflation remains too high. Employment is still beyond its maximum sustainable level, and near-term inflation expectations remain elevated. Despite the positive signs, the expectation remains that the OCR will peak within a range of 5.2 to 5.6 percent. The RBNZ expects that inflation will return to within its target band in the second half of 2024, and to two percent by the end of 2025. 

Following the weather events, the RBNZ expects that in the coming weeks prices for some goods are likely to spike, economic activity will be weaker than previously expected, and export revenues will fall. The increased demand associated with the recovery and rebuilding after the cyclone will support economic activity over the next few years. This additional demand in an already capacity-constrained economy will add to inflation pressures. 

The RBNZ is less optimistic about the performance of the economy than the Treasury was in December. A recession is expected to extend over several quarters from the middle of this year, causing GDP to fall by one percent. Meanwhile, the unemployment rate is expected to peak at 5.7 percent in 2025. 

Change in Prime Minister, change in approach

In January, the country was surprised when then Prime Minister, Jacinda Ardern, announced her resignation, and was replaced by Minister Chris Hipkins. With a change in leadership comes a change in focus for the government. In his first speech to parliament the new Prime Minister highlighted the government’s re-focus on “supporting New Zealand families and businesses through difficult economic conditions, investing in the public services we all rely on, accelerating the economic recovery and laying foundations for the future, and providing strong and responsible leadership as we rebuild from Cyclone Gabrielle.”

The Prime Minister acknowledges that there is no silver bullet, and has directed government to provide targeted support for working families and to lift incomes so that those who work hard can get ahead. Government is also directed to tackle the structural causes of inflation, including the lack of competition in the grocery, fuel, building materials and banking sectors, and our exposure to volatile fossil fuel markets.

With the government’s change in leadership, and focus on the cost of living crisis, and the significant investment required to support the recovery from Cyclone Gabrielle, Budget 2023 in March has become much more interesting than the Budget Policy Statement released in December indicated it would be. One thing which seems certain is that Finance Minister, Grant Robertson, will again be forced to push out the date when the government accounts will return to surplus.

2.0 Special feature: The economics of climate change and natural disasters

Cyclone Gabrielle, the floods in Auckland, and other extreme weather events, have again pushed questions on the social and economic costs of such events to the forefront. If we continue on our current trajectory, the frequency and severity of these events will only increase as the planet gets warmer. Although floods are our most frequent natural disaster, we are also prone to earthquakes, droughts, volcanoes, landslides, and tsunamis. The number of us exposed to these risks will also increase as more people move to cities, which are especially vulnerable to such hazards.

In this edition, we take a look at the potential impacts of climate change on Aotearoa New Zealand, and provide an explainer on how climate change and natural disasters impact the economy.

Aotearoa New Zealand has a very high risk of exposure to natural disasters

Aotearoa New Zealand’s exposure to extreme natural events and/or climate change is amongst the highest in the world, with a very high risk of exposure. Risk is measured by the extent of the population that is exposed and burdened by the impacts of extreme natural events. This is unsurprising, given that many of our largest cities are prone to flooding, earthquakes, and volcanic activity. Based on historical seismic activity, there is a high risk of a magnitude six earthquake occurring at least once a year, and a magnitude seven earthquake occurring once every five years. 

Note that when the term “one in 100-year event” or similar is used, it does not mean that the event will happen just once in that time period. What it means is that for every year, there is a one in 100 chance of that event occurring, every year. To that end, a one in five-year event could happen two or more times across a five-year period. Framing events in this way can help people understand relative probabilities, but this framing can also underplay the magnitude of risk. 

Despite our high risk of exposure to these events, and understanding of the importance of disaster preparedness, in practice New Zealanders tend to be underprepared. Research has shown that just one in three of us have actively taken steps to prepare ourselves and/or our household. The key barriers to disaster preparedness are cost, lack of information, and the mindset that we will never be part of such an event, with half of us believing so. One of the biggest motivators for people in preparing for disasters is a disaster itself. Being a part of a natural disaster, or observing the struggles of those who have had to go through one, motivates us to be better prepared.

Changing global temperatures will have a significant impact on our livelihoods

While there is not much we can do about natural disasters such as earthquakes, tsunamis, and volcanic eruptions, we can mitigate against the risks of anthropogenic climate change. The impacts of global warming will vary by region, industry, population groups, etc. Primary industries are the bread and butter of the Aotearoa New Zealand economy and our communities. The primary sector makes up around three-quarters of our goods exports and supports one in 10 jobs. Unfortunately, these industries are also particularly exposed to the negative impacts associated with climate change. 

In terms of industries, agriculture/horticulture will be heavily impacted as increased droughts, floods, and water scarcity impact production. Changing climate patterns will also change fish populations, forcing changes to fisheries. Changing rainfall patterns may impact the growth of forests. In areas where rainfall is expected to fall, but doesn’t, the risk of forest fires will increase. Other costs associated with climate change include the cost to replace damaged infrastructure and capital as a result of flooding, higher medical and pastoral care bills, clean-up costs, etc. 

Disaster economics

Predicting and measuring the cost of disasters has become a growing field of economics and public management over the last 20 years. Victoria University of Wellington is home to the Chair in the Economics of Disasters and Climate Change, Prof. Ilan Noy, who produces research concerned with the impacts of climate change and related disasters. The first place to begin understanding the field is with definitions, namely, what economists mean when they talk about disaster damage, in direct and indirect terms.  

Firstly, and obviously, direct disaster damage refers to the total or partial destruction of physical assets, and the disruption of services and sources of livelihood in communities in the time directly during and after the disaster.  Usually, assets used in calculating direct disaster damage, or direct economic loss, include: 

  • Homes
  • Schools
  • Hospitals
  • Commercial and government buildings
  • Transport infrastructure
  • Energy networks
  • Communication infrastructure
  • Business capital assets such as factories 
  • Production assets such as crops, livestock, and machinery.

It is important to note that other things which people value, such as cultural heritage assets, environmental assets, and intangible personal losses such as pets, are rarely attributed with a number when calculating the total damage to an affected area. The number of fatalities and injuries are usually aggregated separately to economic damages. Loss of life and injury have economic consequences to livelihoods, families, and communities. 

Direct disaster damage is typically used for insurance purposes, and to budget for government recovery costs. However, indirect damage, or indirect economic loss, is concerned with the wider ripples of loss which are felt much longer after the disaster. 

Indirect disaster damage accounts for the revenue decline to businesses, which in turn negatively affects household income, employment, and supply chains. In short, conducting business becomes much harder in the following months or years after the disaster. This is further reflected in the rising prices of consumer goods, a rise in government debt, a drop in stock market prices, and a reduction in businesses’ GDP, all of which can be felt inside and outside the areas affected by the disaster. In cases such as the Christchurch earthquakes, GDP in construction increased following the disaster due to rebuild projects. It is contentious whether such GDP growth is totally ‘value-add’, as the activity is replacing, and sometimes only partially improving, what was lost. 

The wider social costs are rarely measured

Economic losses, including mortality and injury, can be measured in dollar terms in both the short term (direct) and long term (indirect), but this does not mean that damage that costs the same in different areas and countries is equivalent. Recovery is influenced by how easy it is for communities to access the money needed to rebuild. For some communities that have high political visibility this might be trivial, but for others, such as those in developing countries or hard-to-reach communities, accessing the capital needed to get back to normality can be an enormous undertaking. Deeper impacts to social bonds, such as psychological trauma, community displacement, and ongoing stress across day-to-day life, can be even more damaging to communities than economic impacts. 

Unfortunately, it is the vulnerable or marginalised communities who are also most at risk of the consequences of climate change. 

A recent analysis on the effects of 2017 Hurricane Harvey in Harris County, Texas, found that land parcels in Latino neighbourhoods were more likely to be exposed to climate-change attributed flooding, and at the same time these neighbourhoods were less likely to be forewarned of the flood risk. The recovery of lower income and/or minority communities is often slower, and less complete or successful. Low-income households are also less likely to be insured and, if they are, less likely to receive adequate compensation to repair or rebuild.  

The disparities are also at a global level. Between 1751 and 2017, the European Union, USA, and the UK were responsible for 47 percent of cumulative emissions, compared to six percent from the African and South American continents. Yet, the effects of droughts and storms are felt the hardest in developing nations who played a minimal part in creating the problem. There has been talk of introducing a Loss and Damage (LD) fund for developed countries to provide reparations to developing countries affected by climate change, although this idea has proven unpopular with wealthy nations. 

Impacts of the Canterbury earthquakes

According to the OECD, we lose an estimated 0.47 percent of GDP, on average, each year, to natural disasters. That’s nearly as much as the entire dairy product manufacturing industry. And even this is considered to be an underestimation. The series of earthquakes that struck Canterbury in 2010/11 were the costliest natural disasters in Aotearoa New Zealand. Insurance companies and the public sector funded two-thirds of the costs. The National Disaster Fund, which had accumulated a total value of $6.1 billion, was completely depleted following the earthquakes. According to the RBNZ’s estimates, total claim costs were around $38 billion. The fund is currently projected to reach $1.75 billion by 2030, in the absence of further large natural disasters. 

In terms of the wider impacts of the earthquakes, an increase in building activity led to higher migration and a short-term surge in regional GDP. Building consents rose sharply in Waimakariki District, Selwyn District, and Christchurch City. Other impacts included:

  • A decline in tourism to the region
  • Higher rental prices. Between September 2010 and March 2015, rental prices increased faster than anywhere else in the country
  • Higher labour costs in the building and construction industry
  • Median incomes increased as regional GDP was boosted
  • Net migration to the region went up as more people were required for the rebuild.
Source: Statistics New Zealand

Although, on the face of it, economic indicators such as GDP and incomes seemed to have improved, as the rebuild supported increased economic activity, this should not be seen as a sign of social improvement. Over a hundred lives were lost and significant infrastructure was damaged. 

Many of the impacts above will be similar for the Upper North Island following the flooding and Cyclone Gabrielle. Tourism will be heavily impacted, as will building and labour costs. As was the case following the Canterbury earthquakes, migration may need to increase to meet the labour demand for construction workers. In addition, the flooding has also heavily impacted local industries such as horticulture and forestry. At this stage, it is impossible to estimate the total costs of the event. 

How do we move forward?

Given the huge cost of these events, and the fact that risks are generally well-known to homeowners and insurance companies, the companies are less likely to insure the most vulnerable properties in the future. Therefore, the need for long-term planning and risk management has never been more urgent. Unfortunately, we tend to minimise the probability of the risk associated with disasters, and proactively planning for them invariably takes a back seat. 

The National Adaptation Plan (NAP) looks at the impacts of climate change for us now and in the future, and sets out how Aotearoa New Zealand can adapt to the changing climate. The long-term goals of the plan are to reduce vulnerability, enhance our ability to adapt, and strengthen resilience. Actions include planning a managed retreat in the most exposed areas; reducing exposure to climate hazards for homes and buildings, particularly, public housing tenants; integrating adaptation into Treasury decisions on infrastructure; raising awareness of climate hazards and how to prepare; and helping financial entities to better identify and manage their climate risks and support financial stability.

The NAP is a good start, but it is just a start. Making sure the plan translates into action in a timely manner will be an uphill battle. Actions such as those the NAP proposes can only be successful if they have the buy-in of local communities and industry. And they do require large-scale buy-in. Without this, the plan will fail to turn into action, leaving us fumbling yet again when disaster strikes. 

Experts often operate with the assumption that sharing good evidence and making people aware of the risks of climate change is enough to drive action (this is known as the information deficit model). This is an inherently flawed assumption – people need context and an understanding of how these events will impact them on a personal level. Change resistance from communities, the financial system, and even from within government will be the biggest hurdle to overcome if we are to make any substantial progress. This will require a shift in how we shape the narrative around these issues. This includes making messages more accessible and relevant to the target audience(s), presenting shared values, understanding how framing affects the understanding of an issue, using tested metaphors, and a wide range of messengers to reach a wide audience.  

3.0 People resources

The bald facts are:

  • The labour market continues to remain strong, but appears to have lost some steam
  • Migration may return to pre-pandemic levels sooner rather than later.

The labour market

While the data for the final quarter of 2022 indicated continued strength, there were some signs that the momentum observed in the labour market over the past few months is slowing down. The unemployment rate increased slightly to 3.4 percent. The underutilisation rate, which is a broader measure of spare capacity in the labour market also increased from nine to 9.4 percent. Without much room to grow, the employment rate (69.3 percent) and the labour force participation rate (71.7 percent) remained at their historical highs.

Wage growth, which only started to pick up pace towards the middle of 2022, continued its upwards trend. Average hourly earnings growth (in the private sector) continued to surpass general inflation, growing by 8.1 percent during the year. And the adjusted labour cost index for the private sector rose by 4.3 percent (1.1 percent quarterly). Given that the labour shortages have been broad-based, so have the wage increases. Nearly two-thirds of all jobs experienced an increase in salary and ordinary time wages, and 36 percent of jobs saw an increase of over five percent, which is the highest share ever recorded. 


The December 2022 month saw a return to net migration gains, with a gain of 4,600 people in that month alone, reversing the pandemic-era trend of net losses. The average net migration in the December month between 2013 and 2019 was 3,300 people, which includes a large surge in 2019. In the year to December 2022, there was a net loss of 16,600 New Zealand citizens, and a net gain of 32,400 non-citizens. The progressive reopening of the border in the second half of last year paved the way for the return of students and workers. The biggest net gains during the December year were a result of migration from the Philippines, India, South Africa, China, and Fiji.  

Prime Minister, Chris Hipkins, has indicated that a loosening of immigration settings may be on the cards, making the immigration “reset” being planned for during the border closures a distant dream. Therefore, regardless of the election results later this year, we could see a return to pre-pandemic levels of migration sooner rather than later. In addition to this, if past disasters are anything to go by, labour supply shortages in the building and construction industry may have to be filled by overseas workers. A new fast-tracked visa category, called the Recovery Visa, has already been created for migrants with specific skills such as insurance assessors, infrastructure and utilities engineers and technicians, heavy machinery operators, and debris removal workers. This was also the case after the Canterbury earthquakes, where similar visa categories were created to aid with the rebuild. 

4.0 Capital resources

The bald facts are:

  • Demand for new housing is cooling off
  • Demand in the Upper North Island will increase as the rebuild kicks in.

Investment and building activity

One of the biggest immediate impacts of Cyclone Gabrielle has been the degradation of our building and infrastructure stock. The size of the areas impacted, and the number of people living in these areas, makes this a particularly expensive disaster for Aotearoa New Zealand. Given that over half of all household wealth lies in land and assets, developments in this sector can have a significant impact on the overall economy.

Data from the end of last year shows that demand for residential construction was starting to cool off as the effects of higher interest rates started to flow through to the housing sector. Residential building consents issued for the year to December 2022 were just 1.1 percent higher than a year ago. In comparison, the average annual growth rate over the past decade was 11.6 percent. This stagnation was driven by a fall in consents issued for stand-alone houses (down 16.4 percent). Demand for multi-unit homes, particularly apartments, is more robust as housing intensification continues in urban centres, as reflected in consents issued increasing by 20 percent over the year. 

Source: Statistics New Zealand

The scale of damage to residential property and public and private infrastructure from Cyclone Gabrielle has been massive, and could be at par with the damage from the Canterbury earthquakes. Once the damage is assessed and insurance claims start being paid out, building activity will experience a temporary boost in regions such as Northland, Gisborne, and Hawke’s Bay.

5.0 Home base

The bald facts are:

  • Talk of fiscal restraint thrown out as clean-up from flooding looms
  • Risks of higher inflation continue to build up.

Government finances

The financial statements of the Government as at 31 December 2022 showed that most key fiscal indicators were unfavourable compared to the HYEFU 2022 forecasts. The largest variance was recorded for core Crown residual cash ($4 billion higher than forecast) largely due to the timing of payments and higher than expected interest payments. Net debt was also higher than forecast by $1.1 billion. The operating balance before gains and losses (OBEGAL) was generally in-line with forecasts.

The support needed to rebuild and rehouse communities in the aftermath of Cyclone Gabrielle will be an enormous, and expensive, task. The Government will be responsible for covering the response costs to the disaster, replacing damaged public infrastructure and assets, providing relief payments to those affected, supporting businesses and industry in the affected areas, etc. While it will still take some time to assess the full extent of the damage, the associated costs are expected to be in the billions. The Treasury has indicated that although the 2023 Budget was nearly finalised, spending will have to be reprioritised.

Lost output and economic opportunities, combined with a slowdown in activity in the affected regions, will result in lower revenue for the Government. This, combined with higher expenses such as transfer payments and insurance expenses, will have an adverse impact on the operating balance. The additional borrowing required will inflate net debt, and damaged infrastructure and assets will diminish net worth.  


CPI for the December 2022 year remained at 7.2 percent. Quarterly changes point to some deceleration in the pace of price increases. The quarterly change in CPI was 1.4 percent, compared to 2.2 percent during the previous quarter. The prices of tradables were up by 8.2 percent during the year, reflecting consistently high global pressures. Prices for non-tradables increased by 6.6 percent. The primary contributors to higher prices during this period were housing and household utilities (up 1.3 percent), food (up 1.8 percent), and recreation and culture (up 3.4 percent).  

Price and cost increases have been broad-based, and the higher cost of living has resulted in unprecedented wage inflation, which has added to costs for businesses. Higher wages eventually flow on to more economy-wide price increases, since labour is a key input for businesses in nearly all sectors. This channel will be the hardest for the RBNZ to tame, and will require labour demand to cool down (aka higher unemployment).

Source: Statistics New Zealand

Given the widespread damage to housing, public infrastructure, farms, and other businesses in the wake of Cyclone Gabrielle, building costs, food, insurance premiums, and retail prices will all face upward pressure, at least in the near term. The biggest risk to higher than previously anticipated CPI will be via the channel of construction costs, adding to existing pressures in the sector. Labour shortages will also add pressure. In the December 2022 quarter, input prices for businesses in the construction sector were up by 1.5 percent.

Consumer spending

Rising interest rates, falling property values, and the increasingly high cost of living, continue to dampen overall consumer sentiment. ANZ Bank’s consumer confidence index shows that a net 28 percent of households think it is a bad time to buy a major household item. Despite the poor sentiment, electronic card spend was up by 3.3 percent during the January month, reaching a record high. Broad-based price increases and the return of overseas travellers, including students and visitors, are behind the increase.  

The biggest increase during the month came from the non-retail sector (24.3 percent), which includes transport, travel agents, other tour services, and school and tertiary education. The hospitality and services industries also saw significant increases. 

Spending from households in the North Island to replace belongings lost in the recent floods and the cyclone, is likely to provide a boost to the sales of durables, vehicles, and services over the next few months. On the flip side, a weaker job market and high interest rates will pull spending in the opposite direction. 

Source: Statistics New Zealand

6.0 Abroad and beyond

The bald facts are:

  • Service exports set to recover this year
  • Global markets are positive, but the threat of recession still looms


As imports increase faster than exports, our trade deficit continues to widen, reaching a record $15.9 billion in the year ended January 2023. Our top exports during the year were milk powder, butter, and cheese; meat and edible offal; and logs, wood, and wood articles. Growth in our dairy exports has been particularly strong on the back of high global price inflation for these products. Our main imports during the same period were vehicles, parts, and accessories; mechanical machinery and equipment; and petroleum products. 

Our trade is centred on the Asia-Pacific region. Our top five trading partners for imports and exports in the 12 months to January were China, Australia, USA, Japan, and South Korea. Given our heavy dependence on China, economic conditions in the country can have a significant impact on our export performance. Although COVID-19 restrictions have been left behind in 2022, the housing debt crisis and low household confidence may impact demand for our products. 

Source: Statistics New Zealand

Service exports, which crashed in the June 2020 quarter, started to rebound in the second quarter of 2022 as border restrictions eased. Looking ahead to the rest of 2023, we can hope to see this trend continuing. Travel and tourism have already started to rebound. Visitors from Australia, the United States (US), the United Kingdom (UK), and European countries lead the pack in terms of arrivals, reflecting relatively robust economic conditions in those regions. Education exports will see a boost with China’s removal of recognition for distance learning. Efforts are also being made to strengthen ties with India, with Foreign Minister, Nanaia Mahuta, recently visiting the country to promote our goods and service exports such as tourism and education.

7.0 The World


Inflation in Australia reached 7.8 percent over the year to the December 2022 quarter. The Reserve Bank of Australia believes domestic global inflation reached its peak in 2022, and is optimistic the inflation rate will return to its target in the coming years. However, easing in global goods prices has not yet reached the prices for goods in Australia. GDP is expected to grow at around 1.5 percent with the effects of higher interest rates, increasing cost of living, and declining wealth to put downwards pressure on demand. 

On the plus side, China’s reversal of COVID-19 containment measures in December resulted in increased demand for Australian goods, which will improve the country’s terms of trade, and thus boost national income in the short term.  


In their recent Statement on Developmental and Regulatory Policies, the Reserve Bank of India released guidelines on regulatory initiatives on climate risk and sustainable finance, which had been open since July 2022 for public comments and feedback. The following guidelines will set the bank’s workstream for climate risk and sustainable finance policy:

  • a) Create a broad framework for acceptance of Green Deposits 
  • b) Introduce a disclosure framework on climate-related financial risks
  • c) Provide guidance on Climate Scenario Analysis and Stress Testing

Another policy the Reserve Bank of India (RBI) is introducing is to expand the capability of Unified Payment Interfaces (UPIs) for merchants and visitors. UPIs are straightforward payment instruments which allow customers to pay merchants straight from their phones via QR codes. The proposed expansion aims to permit all travellers to India to be able to access UPI for their payments. Initially, this will only be available to travellers from G-20 countries arriving at international airports. 

The RBI noted that emerging market economies have been facing sharp trade-offs between supporting economic activity and controlling inflation. The Bank decided to raise interest rates by 25 points to 6.5 percent. Real GDP growth was estimated at seven percent for the 2022-2023 financial year, and inflation is expected to remain above the bank’s target of four percent for the 2023-2024 period, despite a noted decrease due to a sharp deflation in vegetable prices in October.


In early December 2022, China relaxed their highly restrictive COVID-19 containment measures. As expected, this led to an initial wave of COVID-19 cases, which subsided towards the end of December. Despite high expectations, the Chinese economy did not kick off to a roaring start. Growth in loans to businesses increased, but there was a sharp drop in loans to households. While road and traffic activity has returned to pre-pandemic levels, turnover in freight is down from the same time last year. 

Due to the low demand for mortgages and small home loans, construction activity has remained sluggish. Core CPI in China rose by a meagre one percent in January. The outlook for the future remains positive. In-person meetings are crucial for doing business in China, and this has not been possible until quite recently. A focus for growth in fiscal policy will likely see households and business build optimism in the coming year, and some believe GDP growth of 5.7 percent is possible for the coming year. Of course, the cloud of global recession looms, which may or may not work in China’s favour. Global businesses may look to produce in China to reduce costs, or they may suppress production all together and reduce demand for China-produced goods.


There was a slight contraction in the Japanese economy during the December 2022 quarter due to a drop in net exports. This contraction was not concerning to the Bank of Japan as domestic demand for goods remains strong with a healthy demand for imports as households remain confident. 

The signal to increase spending on Defence will mean a rise in taxation and a tightening of expensive policies. Inflation has been high, at 3.8 percent year on year in October, but relative to other countries this is low. Certain goods, such as furniture, have seen inflation towards 6.9 percent. 

Uniquely among central banks, the Bank of Japan changed its monetary policy stance. The bank widened the band of its yield curve to be able to float 25 basis points higher or lower than previously. This indicates that market interest rates are higher than what the central bank is targeting, so the widening of the band aims to bring these rates into line. As a result, the Yen appreciated against the US dollar more than four percent in the day following the policy announcement. Markets expect the US Federal Reserve to reduce rates before the end of 2023 in the face of a recession. Should this happen, the Yen will likely appreciate further, reducing the price of imports to the country. 


The US Federal Reserve (the Fed) reaffirmed their 2012 Statement on Longer-Run Goals and Monetary Policy Strategy at the end of January 2023. The Fed stated they were committed to their mandate of promoting maximum employment, stable prices, and moderate long-term interest rates. While this is nothing new, it affirms that the role the Fed will play in the coming years will not change materially. 

The USA economy is tracking in line with OECD countries. GDP increased by 2.1 percent over 2022, compared to 5.9 percent in 2021. Inflation is in line with most global rates at 6.5 percent for the December 2022 quarter and the Fed has set their interest rates to 4.5 to 4.75 percent. Imports are high with a 3.9 percent increase in the US trade deficit. As in Aotearoa New Zealand, unemployment remains at record lows of 3.5 percent. Of the states, Alaska saw the highest GDP increase at 8.7 percent for December 2022 and the lowest was Mississippi at negative 0.7 percent. Household incomes increased in all states. However, wealth fell for all income quintiles except the bottom 20 percent over last year’s quarters, and the poverty rate was noted to have reached 11.6 percent at the end of 2021. 


As of the first of February 2023, the Bank of England set their interest rate to four percent, a rise of 0.5 percentage points from the previous rate. The Bank does not believe inflation has peaked across most economies, including in the UK. However, gas prices and supply chain disruptions appear to be easing, which will put reduced pressure on households and businesses. The Bank expects the impacts of their successive rate increases since December 2021 will start to be felt across the economy in the coming quarters. 

Key judgements by the Bank of England propose that the level of potential output in the UK is held back by recent economic shocks, such as the trade relationship with the EU, the pandemic, and changes in energy prices due to the Ukraine conflict. The new trading relationship with the EU is likely to impact the UK economy sooner than expected, with a predicted 3.25 percent reduction in productivity on the cards, due to increased barriers to trade and a reduction in volumes of EU goods into the UK. 


The Governing Council of the European Central Bank (ECB) has decided on the approach to reduce the Eurosystems holdings of security. This will involve the asset purchase program portfolio declining by 15 billion Euro per month on average from the beginning of March to the end of June 2023. Reinvestments made under corporate bond purchases will be tilted strongly towards issuers who demonstrate high performance regarding meeting climate change and emissions goals. The approach will aim to maintain price stability while supporting the decarbonisation of corporate bond holdings in line with the Paris Agreement. 

Recent news includes the addition of Croatia into the Euro Area as of 1 January 2023. The ECB committed to raise interest rates by 50 basis points, and to raise by a further 50 points in March. The Euro area economy grew by approximately 0.1 percent in the December 2022 quarter and its economic activity is expected to remain weak in the short-term. Despite the ongoing conflict in Ukraine suppressing economic activity, supply chain disruptions have been gradually easing and the supply of gas has become more secure. 

The ECB stated that the European economy has proved more resilient than expected, so recovery appears more likely in the coming quarters. The ECB recommends the focus of government policy should be targeted to preserving incentives for households and businesses to consume less energy, and fiscal measures should be targeted at improving productivity and bringing down public debt. The ECB advises that investment, structural, and economic governance reforms across Europe will need to be implemented and concluded as soon as possible to ensure policies keep up with the changing political and economic landscape. 

The path of global GDP growth

GDP growth was sluggish for most countries for the December 2022 quarter. Notably, China did not keep their momentum in GDP growth from the September quarter, despite opening up their economy with the relaxation of COVID-19 containment measures. Japan, USA, UK and the European Area (EA) kept their growth at or just above zero from the previous quarter, which implies a recession still looms over the global economy, but has not yet made landfall. Headline GDP data was not available for Australia and India at the time of writing. Most countries do not foresee high GDP growth in the near future, with the exception of China and India. While economies appear to be cooling, it is unclear when exactly a recession will emerge, and how this will affect production across the globe. 

Source: OECD

8.0 BERL forecasts

We have simplified the contents of our forecast data tables, to focus on a selection of key variables. 
If you would like to obtain forecasts of other variables not shown, please email or phone +64 21 868 190.

We have pencilled in a contraction in economic activity for the June 2023 year, as the reduction in economic activity resulting from the cyclone sets in. As a result of higher interest rates, we expect unemployment to increase. We also see net migration returning to near pre-pandemic levels by June 2023, after which it will continue to increase. In addition, given the strong wage growth and sustained inflation, we have adjusted our forecast for the CPI upwards for 2023.  

All % growth rates are annual June years
2021 2022 2023 2024 2025
Actual Actual Forecast Forecast Forecast
GDP (production) 5.3 1 -1 1 1.5
FTE employment growth 2.7 2 1.1 1.2 1.3
Unemployment rate (% of labour force) 4 3.3 3.9 5.5 5.3
Net migration 4,700 11,500 46,000 50,000 50,000
CPI 3.3 7.3 6.9 4.2 2.9
Exports growth -0.2 12.6 13 4 6
Imports growth -7.2 38.7 16 5 8
OBEGAL ($ billions) -4.7 -9.7 -7.4 -5.5 -1