Photo: RNZ
US President Donald Trump might not be putting tariffs on New Zealand imports to the US, but New Zealanders may still feel the impact, economists say.
Trump has introduced trade tariffs on Mexico, Canada and China and there is a warning it could mean interest rates stay higher in New Zealand than they might otherwise have.
Council of Trade Unions economist and policy director Craig Renney said he still expected a 50 basis point cut at the next Reserve Bank monetary policy update.
But he said the tariff move could have an impact beyond that.
"One of the first things that is likely to happen is that US interest rates won't fall as fast as people are expecting because inflation is likely to rise in the US."
Council of Trade Unions (NZCTU) policy director and economist Craig Renney. Photo: Stuff / ROBERT KITCHIN
He said because the difference between the Federal Reserve rate and the New Zealand cash rate was one of the drivers of mortgage rates in New Zealand, it could mean pressure went on the rates that banks offered home loan borrowers.
"You might see the OCR fall in New Zealand but it have no impact on mortgage rates.
"You could have the odd situation where the Reserve Bank has got its foot on the accelerator trying to reduce the cost of borrowing but for domestic residentially borrowing it makes no difference."
The Reserve Bank might signal uncertainty around the impact of trade on the economy in its next update, Renney said.
Westpac chief economist Kelly Eckhold agreed tariffs were likely to have an impact on interest rates.
Westpac chief economist Kelly Eckhold. Photo: Newshub
"There is likely to be upward pressure on long term interest rates and US inflation.
"This is likely to flow over to New Zealand interest rates although the inflation consequences are less clear as there could be a combination of increased global supply of manufactured goods that otherwise would have gone to the US versus a weaker exchange rate.
"It's a lot more to do with what happens after February. The Reserve Bank will have to look into the tea leaves and make lots of assumptions about lots of things associated with tariffs, whether they end up being imposed on New Zealand exports as well, the degree of retaliation that occurs around the world."
He said a bigger impact for New Zealand was likely to come in the exchange rate.
The US dollar was likely to be pushed up, and New Zealand's would be weaker in comparison.
"We suspect that the exchange rate will move lower in response to further trade policy shocks by more than interest rates will.
"That's likely better for exporters but it does mean households face higher traded goods inflation than has been seen for most of the last year."
Infometrics chief forecaster Gareth Kiernan said it was not a given that higher inflation in the US would flow through to elsewhere.
Infometrics chief forecaster Gareth Kiernan Photo: RNZ / Rebekah Parsons-King
"The outcome for other countries will depend on which of two effects is the dominant one: weaker global demand will tend to lead to lower inflation; but higher input costs for businesses in the US and other countries affected by import tariffs will tend to lead to higher inflation.
"So for Kiwis, products sourced from North America could become more expensive, but overall weaker global demand could see less price pressure on goods from other countries.
Kiernan expected it would not be until the second half of 2025 before anything showed up in inflation numbers.
"I'd expect softening expectations of international economic growth out into 2026, which could undermine our export performance and economic growth next year.
"The direct effects on households in provincial regions from weaker export incomes are reasonably straightforward - for the rest of the country, it could mean that the recovery from the stagnation and recession of the last two years is less pronounced or sustained than we might otherwise have hoped."
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