Momentum in New Zealand economy to continue - Quarterly Predictions, June 2016

01 June 2016

New Zealand Institute of Economic Research (Inc)
Media release 31 May 2016

EMBARGOED until 1am, Wednesday 1 June 2016
NZIER Quarterly Predictions, June 2016

Momentum in New Zealand economy to continue, says NZIER

The New Zealand economy is showing reasonable momentum, with households and businesses resilient in the face of offshore volatility earlier this year. We continue to expect strong population growth for the foreseeable future. Construction and tourism will remain the key drivers of solid growth for the next few years, with annual GDP growth forecast to average around 2.8% beyond 2016.

Net migration has been much stronger than expected over the past year. This will boost demand across a wide range of sectors, including retail and housing. Meanwhile, low fuel prices and rising middle class incomes in the major economies, particularly China, are supporting continued strong tourism activity. This is injecting income into regional economies.  

Inflation outlook remains subdued

Despite solid New Zealand economic growth, the inflation outlook remains subdued. We do not expect annual inflation to edge back into the Reserve Bank’s 1-3% inflation target band until the end of this year.

Reserve Bank’s focus on inflation means scope for further easing

In contrast with the low inflation environment, house price inflation is broadening and strengthening. Strong population growth and lower interest rates are reigniting interest in housing, with housing market activity strengthening beyond Auckland and the “halo” regions of Waikato and Bay of Plenty.

As long as the Reserve Bank’s primary focus is on bringing CPI close to 2%, it will see further monetary policy easing as warranted. Managing asset price inflation is a secondary aim.

This suggests it will see further scope to cut the OCR, although the timing of the next cut is highly uncertain. We see the June meeting as a very close call, but expect the Reserve Bank will choose to wait until August to cut the OCR.

An independent take on the New Zealand economic outlook is available exclusively to NZIER’s members in the latest Quarterly Predictions.

For further information please contact:
Christina Leung, Senior Economist & Head of Membership Services
christina.leung@nzier.org.nz, 021 992 985

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