Debt financing – prospects for 2024

27 February 2024

Unpredictable events, such as COVID-19 and the cost-of-living crisis, have created a difficult and volatile environment for the domestic economy in recent years. In this article we summarise the main economic trends predicted for 2024 and examine their impact on the NZ funding market.


  • We expect some relief from inflationary pressures in 2024, with CPI inflation predicted to drop below 4% and, potentially, to come back within the Reserve Bank of New Zealand (RBNZ) target range of 1-3%.
  • How this will translate into interest rates is harder to determine. The United States Federal Reserve (US Fed) expects to make three rates cuts this year but most other central bankers remain hawkish and the RBNZ is likely to want evidence that the inflation tiger is securely back within the 1-3% cage before it starts cutting.
  • ANZ is predicting another rates hike before RBNZ goes into cutting mode, and most other market commentators are expecting rates to remain stable through the year.
  • Our pick? The cash rate will stay at 5.5% for most of 2024, with a possible 50 basis point cut (in aggregate) in the last quarter. The RBNZ will take a cautious and slow approach to monetary policy, with the effect that borrowing costs will remain elevated for some time.

Scanning the economic horizon

  • The economy is soft but relatively resilient. We are more likely to experience stagflation than recession. Any dip is likely to be shallow.
  • Business confidence has risen with the change in government but it is not clear whether this will lead to increased activity or whether it just reflects an expectation of more business-friendly policies. The timing and much of the detail of the Government’s policy programme is yet to be announced.
  • Bank appetite for lending remains stable. Credit risk, capital requirements and competition for deposits are all increasing - but demand for new lending is low, NZ banks are well-capitalised, and cuts have been signalled for red-tape (particularly in the consumer sector). Australian lenders are still seeking out NZ project finance, structured finance and ESG-linked deals.
  • We expect elevated levels of activity in the debt capital markets to continue in 2024, following a busy finish to 2023. The pipeline of retail transactions has started the year strongly – upcoming debt maturities and higher coupon rates are keeping both issuers and investors active in the market.
  • There was an uptick in insolvencies in the last half of 2023. We are expecting this trend to continue. The impact on the economy has been muted by the continuing willingness of the banks to endure long periods of distress and to enter work-outs with borrowers rather than resort to the asset fire-sale. We have been hearing for years that bank lenders will soon run out of patience but they don’t seem to have yet.
  • Offshore private debt providers, newer to the New Zealand market, may take more aggressive action. Equally, they may be sensitive to the damage this could do to their nascent reputation in New Zealand and prefer a gentler approach.
  • Some industries will be harder hit than others. Retail, construction, start-ups and SMEs may be particularly vulnerable.
  • Many market commentators are picking a resurgence of M&A activity in 2024. We think the situation is more unpredictable, with expected interest rate cuts likely to be delayed and an unpredictable international situation. An anaemic 2023 doesn’t necessarily mean a full pipeline for 2024.

Green lending opportunities

  • Decarbonisation initiatives and sustainability-linked loans (SLLs) remain attractive to lenders eager to grow their green books, although SLL margin adjustments are still quite small in most cases.
  • Agreement on Asia Pacific Loan Market Association (APLMA) principles is allowing more standardisation which should reduce green lending costs over time.
  • These and other forms of ESG-linked lending are subject to intense innovation – a characteristic we expect will continue.

Immense international uncertainty

  • China has been slow to recover from COVID-19 and is expected to continue to struggle in 2024 with a significant decline in the Chinese property market. This will affect New Zealand exports and dampen New Zealand’s economic growth prospects.
  • The Russia-Ukraine war ongoing war shows no signs of ending and will continue to stoke global inflation by pushing up prices for key commodities such as grain and fuel.
  • Trade disruption from Houthi attacks on shipping in the Red Sea will continue to disrupt supply chains (although nowhere near the levels at the height of the COVID-19 pandemic).
  • More than 40% of the world’s population is eligible to vote in elections this year across the United States, India, the European Union, South Africa and (almost certainly) the United Kingdom. The US presidential election in particular is likely to be a source of significant uncertainty, and new fiscal policies will have consequences for the global economic environment.


Unpredictable events, such as COVID-19 and the cost-of-living crisis, have created a difficult and volatile environment for the domestic economy in recent years. We expect a slow and steady rebound for business in 2024. Although interest rates and insolvency risks will likely remain high and may even grow, the worst of the inflationary pressures should soon be behind us.

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