The Finance Minister is issuing a grim warning about the economy after a major New Zealand bank warned a soft landing is becoming increasingly unlikely.
Westpac issued the warning in its Economic Overview which was published on Tuesday.
In the report, the bank said pressure on prices and wages means the chances of a soft landing for the economy are getting slimmer.
A soft landing means the economy would slow down but not crash, leading to slightly lower spending and helping reduce inflation.
But the bank warned increasing wages and prices means Kiwis could be in for a more abrupt correction.
Speaking with AM on Tuesday Grant Robertson said while Aotearoa is in for a tough year, the country is well-placed to deal with the economic challenges.
"I don't think we're in that spiral situation just yet because most commentators still agree that inflation has probably peaked in New Zealand and so we will see it start to slowly come down," Robertson said.
"But it won't be a rapid descent as Westpac has said and it's really the context of the global economy that concerns me here. New Zealand's in a relatively strong position to deal with these issues, but we will still be impacted on it and that filters down to that household level.
"So it is going to be a tough 2023, low unemployment, low public debt… these are the things that help us get through this. But at an individual household level, some households are going to be finding it very tough over the next term."
AM co-host Ryan Bridge then questioned whether low unemployment was actually hurting the economy more than it was helping.
But Robertson said it's about finding the right balance between ensuring workers have enough to survive without exacerbating inflation.
"We do have to make sure we support people to be able to meet their costs and meet their outgoings.
"Throughout history, we've seen periods of time when we have high inflation like this. Most commentators agree we have peaked…and so what we've got to do is work our way through it carefully.
"But, you know, it is a competitive labour market, you're right. The point I was making about unemployment was that New Zealand's starting point for dealing with a difficult time when many of our trading partners are forecast to go into recession is one that's strong because we have people in work. If you've got your mortgage going up and you don't have a job, it would be a much worse situation than one when you do. So there's a balance to be struck here. The government, private sector, and employers are all looking at what their balance looks like right now."
In the report, Westpac predicted the Official Cash Rate (OCR) to peak at 5 percent in 2023. The bank is expecting a hefty 75 basis point hike later in November.
The RBNZ has repeatedly hiked the OCR in an attempt to dampen spending and tame high inflation. The OCR started increasing in October 2021 from 0.25 percent to 0.50 percent. Since then it's kept rising until it hit 3.5 percent in the latest review. But despite the skyrocketing OCR inflation barely budged in the latest figures, sitting at 7.2 percent in the September numbers just down from 7.3 percent in the June figures.
Sky-high inflation and wage increases from low unemployment have seen the cost of just about everything increase but sadly it looks like it's going to be some time before things get better.
