Kiwibank senior economist Jarrod Kerr also expects house prices to rise at a slower pace.

“LVR restrictions should take some of the investor-related froth off the top of the market,” Kerr says.

“A closed border means population growth is slowing… house price growth should slow to a more modest 5-to-6 percent year-on-year pace from the second half of 2021,” Kerr adds.

Low interest rates to continue, big drop unlikely

Retail interest rates could fall slightly, but as a negative cash rate looks increasingly unlikely economists don’t expect the drop to be huge.

Mortgage rates offered by the main banks on Monday start from 2.29 percent fixed for one-year, or from 3.4 percent on a floating rate. The Official Cash Rate, currently 0.25 percent, will be reviewed on February 24.

Kerr expects borrowing to get slightly cheaper as bank uptake of the Reserve Bank Funding for Lending (FLP) programme increases. The Large Scale Asset Purchase (LSAP) programme is helping to keep interest rates low.

“We expect that interest rates could fall further over 2021 [but] we don’t expect to see any aggressive falls,” Kerr says.

Olsen expects the Reserve Bank to consider the rise in inflation and how the FLP programme affects interest rates before cutting the Official Cash Rate further.

“Barring any unexpected reversal in our economic recovery, a negative OCR is now off the table,” Olsen says.

“We expect interest rates to remain at current, or slightly lower levels, for the next couple of years.”

Unemployment expected to peak at 6.5 percent

Reflecting the number of people actively looking for work, official unemployment, currently 5.3 percent, is forecast to climb to around 6.5 percent.

Kerr says the labour market mirrored the rebound in economic activity.

“We’re forecasting a peak of 6.5 percent in early 2021 – well below the double-digit rate thought possible during the height of the COVID-19 crisis,” Kerr says.

The tourism and education industries are among those bearing the brunt of border closures.

“The challenging summer months and the quiet beginning to the academic year could see a further lift in unemployment.”

Unless there’s a widespread COVID-19 outbreak, this year is about recovery. Although the hospitality sector is still affected by the loss of international tourism, job numbers and spending activity is holding up. Kiwibank expects GDP to rebound 3.5 percent and economic activity to reach pre-COVID levels by early 2022.

Following a confirmed community case of COVID-19 on Sunday, New Zealand is at risk of another outbreak. Economist Shamubeel Eaqub says in the event of another lockdown, the upside is we’re better prepared.

“We saw in the second lockdown that households and businesses figured out how to deal with lockdowns much better… if there’s another lockdown I would expect it to have a much smaller impact than we did in April 2020,” Eaqub says. 

Source Google News