NZIER sees offshore developments weighing on the growth outlook - Quarterly Predictions, September 2019

New Zealand Institute of Economic Research (Inc)
Media release 27 August 2019
Embargoed until 1am, Wednesday 28 August 2019
NZIER Quarterly Predictions, September 2019

Growth is expected to slow over the coming years as offshore volatility weighs on demand, as detailed in the latest NZIER Quarterly Predictions. “We now expect annual GDP growth to average around 2.2 percent over the next five years. With the trade war between the US and China showing little sign of being resolved anytime soon, this is likely to dampen demand for New Zealand exports from 2020.”, said Principal Economist Christina Leung.

New Zealand economy at a solid starting point

The New Zealand economy has experienced 33 consecutive quarters of growth – the longest stretch since records began in 1947. The unemployment rate is also at an 11-year low of 3.9 percent, and the solid population growth in recent years underpins construction demand. Although the number of tourists coming into the country looks to have peaked, tourism spending is holding up. All this suggests the New Zealand economy is on a solid footing to weather the global headwinds.

Confidence soft

Business confidence remains weak, as businesses continue to struggle to pass on rising costs by raising prices. Businesses are also reporting a softening in demand. Households have become more cautious about discretionary spending. However, there are signs housing demand is picking up, supported by the removal of the potential for a Capital Gains Tax, the relaxation of loan-to-value (LVR) restrictions at the beginning of this year and lower mortgage rates.

RBNZ slashes OCR, and open to more easing

The Reserve Bank surprised markets in August by cutting the Official Cash Rate (OCR) by 50 basis points. Although an OCR cut was widely expected, the extent of monetary policy easing has fuelled debate over the effectiveness of interest rates at very low levels to stimulate demand and inflation. Given the Reserve Bank’s primary concern with a deteriorating global growth outlook and tendency to err towards easing, we expect one further OCR cut by the end of this year.

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, Principal Economist & Head of Membership Services
christina.leung@nzier.org.nz, 021 992 985