NZIER says New Zealand growth outlook still solid - Quarterly Predictions, June 2017

31 May 2017

New Zealand Institute of Economic Research (Inc)
Media release 30 May 2017

EMBARGOED until 1am, Wednesday 31 May 2017
NZIER Quarterly Predictions, June 2017

A combination of strong net migration, tourist inflows and improving rural sector incomes points to a continued solid outlook for the New Zealand economy, as detailed in the latest NZIER Quarterly Predictions.

“We expect annual growth in the New Zealand economy to track around 3 percent on average over the next five years”, said Senior Economist Christina Leung.

…driven by migration, tourism and construction

“Strong population growth and tourism activity is supporting a ramp-up in construction activity, with robust demand for residential construction and new hotel developments and office space. Capacity pressures are evident in the construction sector, but labour shortages are being alleviated by migration.

The recent upward revision by Fonterra to the dairy payout for the current season and a higher payout forecast for the next season will provide an income boost to the rural sector”, Leung said.

In contrast, the global backdrop remains highly uncertain. Heightened geopolitical tensions present a downside risk to the global growth outlook. As a small open economy, New Zealand will not be immune to any downturn in the major economies.

Inflation continues to edge higher

Annual CPI rose to 2.2 percent for the year to March 2017.

“Higher food and petrol prices were the key drivers behind the lift in inflation in the March quarter. These may not persist, but we still expect underlying inflation to lift over the coming years and keep annual CPI around 2 percent over the medium term”, said Leung.

Interest rates to increase over the coming years

“We continue to expect the Reserve Bank will begin lifting the OCR in mid-2018”, said Leung.

The lift in CPI inflation back to around the mid-point of the Reserve Bank’s 1 to 3 percent target band has taken some of the pressure off the central bank. This, combined with inflation expectations lifting, means the focus has turned to when the Reserve Bank will begin lifting the OCR. Although the central bank has indicated it expects to remain on hold until later in 2019, recent developments suggest an earlier tightening.

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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