Brighter 2014; some lingering risks - Quarterly Predictions, December 2013 - media release
27 November 2013
New Zealand Institute of Economic Research (Inc)
Embargoed until 1am Wednesday 27 November 2013
NZIER Quarterly Predictions, December 2013
Brighter 2014; some lingering risks
The New Zealand economy will grow strongly in 2014. It will be the best performance since 2007, before the recession. It has taken seven years to recover from one of the deepest and longest recessions on record.
Household spending is leading the charge, boosted by the Canterbury recovery and a rebound from last summer’s drought.
There are some risks: the global economy is still fragile and a soaring Auckland housing market could derail economic and financial stability.
Detailed commentary and forecasts for the next five years are available exclusively to NZIER members.
Interest rate hikes on the side-line for now
Auckland house prices have surged to unprecedented levels, relative to history and international experience (Figure 1). There is more borrowing and the risk from a potential fall in house prices is high.
The RBNZ is loath to raise interest rates to control the Auckland housing market, because inflation is still low and the recovery is still in its early stages.
If its new tools, like the LVR limits (Figure 2), don’t cool borrowing and house prices sufficiently, the RBNZ will raise interest rates quickly in 2014.
Take stock of strategic economic forces
2014 presents business leaders with a positive economic backdrop. Their attention can shift from hunkering down to strategy and growth.
The secular economic forces are: technological change, globalisation and ageing. These forces are feeding off each other, meaning the pace of change is getting faster. An environment of accelerating change requires organisational nimbleness and adaptation.
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Figure 1 Auckland house prices a risk for financial and economic stability
Figure 2 LVR speed limits have reduced the value mortgages approved by 17% between September and November