New Zealand economy to ride out global risks, says NZIER - Quarterly Predictions, September 2016

31 August 2016

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

EMBARGOED until 1am, Wednesday 31 August 2016
NZIER Quarterly Predictions, September 2016

The solid momentum in the New Zealand economy should provide a buffer against the more fragile global outlook. Geopolitical uncertainty in the United Kingdom and United States, along with the slowing in the Chinese economy as it continues to rebalance, pose downside risks to the demand for New Zealand’s exports. But the outlook for key exports remains positive and domestic demand remains strong, as we expect the effects of strong population growth will continue to ripple across the sectors and regions in New Zealand. We continue to expect annual GDP growth will average just under 3% beyond 2016.

Construction will be a key driver of growth in the New Zealand economy, with a solid pipeline of residential, commercial and infrastructure work. And despite the more fragile global growth outlook, the increased flight capacity and continued low fuel prices will bring more tourists to these shores from a range of countries.  

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

Inflation outlook still subdued

The solid economic outlook contrasts with the continued subdued inflation environment. The high NZD continues to put downward pressure on the price of imported household goods, and we expect this to remain a feature of the New Zealand economy over the coming year. We do not expect annual inflation to edge back into the Reserve Bank’s 1-3% inflation target band until the first half of next year.  

Further interest rate cuts on the cards

Around the world, major central banks are struggling to lift inflation by providing an unprecedented amount of stimulus to their economies, with the effects largely coming through in asset prices.

With the primary focus of the Reserve Bank’s Policy Targets Agreement on lifting annual CPI back towards to its 2% mid-point target, we expect the central bank will cut interest rates further to take the OCR to 1.5% by mid-2017.

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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