Guest host Reagan White, from Where’s My Money?, joins us to discuss why 2025 is set to be a better year than 2024, with a particular focus on improving interest rates and the overall economic outlook. We dive into how the Reserve Bank’s decisions and the current economic climate could set the stage for a brighter future.
Right now, many of us in New Zealand are feeling the squeeze from high-interest rates and the ongoing impact of inflation. In 2022, inflation hit a staggering 7.2%, a level that hasn’t been seen in decades. Such high inflation can have dangerous long-term effects, potentially leading to scenarios like hyperinflation, as seen in countries like Venezuela and Argentina. The Reserve Bank of New Zealand responded by significantly raising interest rates to curb inflation, leading to economic hardship for many Kiwis.
However, as we discussed with Reagan, this economic pain might be the necessary medicine to prevent a more catastrophic outcome. The Reserve Bank’s aggressive stance on inflation was crucial to avoid the devastating effects of hyperinflation, which can cripple an economy and erode the value of our savings. These tough decisions, though difficult, have set the stage for a more stable economic environment in the years to come.
So, why do we think 2025 is going to be better than 2024? The key lies in the forecasted trajectory of interest rates and inflation. By the end of 2023, interest rates are expected to stabilise around 6.1% for a one-year fixed term. However, as we move into 2025, there’s optimism that interest rates will decrease to the low fives or even high fours. This decline is significant because it marks a return to more manageable levels, reminiscent of the pre-pandemic era.
This potential drop in interest rates is not just a minor adjustment; it’s a signal that the worst of the economic storm may be over. We believe that we’re currently at the bottom of the “hockey stick” curve, a point where things are about to take a positive turn. While the recovery might not be as rapid as the downturn, the outlook for 2025 is one of gradual improvement, particularly as inflation continues to fall within the Reserve Bank’s target range of 1-3%.
Looking ahead, the key reasons for our optimism in 2025 are:
1. Interest Rate Stabilisation: As interest rates start to decline, we can expect relief for homeowners and businesses, leading to increased consumer spending and economic growth.
2. Controlled Inflation: With inflation expected to be back within the target range by the end of 2024, the economic environment will be more predictable, allowing for better financial planning.
3. Economic Resilience: The tough measures taken in 2023 and 2024 have laid a solid foundation for recovery, making 2025 a year of rebuilding and growth.
While the road to recovery hasn’t been easy, we’re feeling optimistic about what 2025 has in store. The economic challenges we faced in 2023 and 2024 have forced us to make difficult but necessary adjustments. As interest rates decrease and inflation comes under control, 2025 offers a brighter, more stable future for all of us. The year ahead is one of cautious optimism, with the promise of better days to come.
1. Interest Rate Relief: We can expect lower interest rates in 2025, easing financial pressure on homeowners and businesses.
2. Inflation Under Control: With inflation likely to be within the target range by the end of 2024, economic stability is on the horizon.
3. Foundation for Growth: The tough economic measures of the past two years have set the stage for recovery, making 2025 a year of renewed growth and opportunity.
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