ASB has released updated economic forecasts for the quarter showing an improved outlook for New Zealand.
The bank's chief economist Nick Tuffley said the economy has demonstrated more resilience than anticipated by many forecasters. Declining oil prices have lowered the threats to both growth and inflation, and the outlook has shifted substantially in recent months compared to the bank's March projections.
GDP increased 0.8% in the March quarter. ASB projects inflation will reach approximately 4.1% in the year to June, before falling during the second half of the year and through 2027.
Visitor arrivals have returned to 93% of pre-Covid levels. ASB anticipates the recovery will proceed at a steady pace, with support from resilient commodity prices, recovering tourism and lower fuel costs. Meat and dairy export sectors remain supported by strong global demand.
The bank projects the Reserve Bank will hold off until at least September before considering raising interest rates, with the official cash rate likely to return to 3.25%.
The economy had been regaining momentum during the latter half of last year and the start of this year before conflict erupted in the Middle East. Shipping through the Strait of Hormuz remains disrupted and energy infrastructure has been damaged.
"The recovery has not been derailed, but it has been delayed," Tuffley said. Consumer spending, business investment and certain export sectors continue to experience impacts from the oil shock, while the labour market remains weak. Elevated uncertainty and fuel prices will continue to influence conditions during the middle months of this year.
"The inflation outlook remains highly uncertain and depends heavily on developments in the Middle East, but the recent fall in oil prices means inflation now looks considerably less challenging than it did a few months ago," Tuffley said. "The outlook has improved, but uncertainty remains high."