Economic Outlook

March 2017: Maturing gracefully (PDF 280kB)

The economic cycle has reached a mature stage. Historically, sharp slowdowns have followed. But we don’t believe the cycle is about to roll over and expire due to domestic considerations. Credit/housing related excesses are being more actively curtailed, which lessens the odds of imbalances building further and ultimately bringing about a nasty future correction. Numerous support factors remain, which should allow annual GDP growth to hover around 3% over 2017.

December 2016: Cycling around (PDF 312kB)

The economy is entering its eighth year of expansion with strong momentum. But natural headwinds are now emerging (capacity pressures, a turn in the credit cycle, tighter financial conditions, stretched asset valuations) that should see growth ease over the course of the year from 3½-4% towards 3%). We view this moderation as healthy. Price pressures are now building – we expect the RBNZ to begin removing stimulus from mid-2018 (but wouldn’t rule out earlier).

October 2016: Just what I needed (PDF 320kB)

Momentum in the economy is strong and the expansion has some legs yet. But late-cycle challenges are emerging. A natural balance sheet constraint will require credit growth to ease up, and this – in association with capacity constraints – is a key reason we expect GDP growth to ease from a strong to solid pace over the coming two years.

July 2016: Rolling with the punches (PDF 336kB)

The economy continues to perform well and we expect more of the same over the years ahead. Challenges in dairying and a high NZD are being outweighed by other sectors. Solid demand will see capacity constraints intensify and domestic inflation pressures gradually lift off lows. Key risks are that a) too much domestic-centric growth, a housing market boom and the associated debt build-up will require a purging process; and b) global wobbles turn into outright weakness.

March 2016: Split personality (PDF 264kB)

The economy has Jekyll and Hyde characteristics. Housing is booming, as are construction and tourism. Yet dairying is in the doldrums and will be for some time. The mix of growth (borrow and spend) is not sustainable and a lower OCR (courtesy of low inflation and global unease) will mean more housing largesse at a time households are already heavily leveraged. Amidst uncertainty, we are forecasting 2½-3% growth over the coming three years.

December 2015: A firmer footing (PDF 308kB)

The economy has reasonable momentum heading into 2016. Risks include the weather, the global scene, low export prices and deteriorating structural metrics, but there are reasons for cautious optimism too. Respectable growth should see the unemployment rate begin to fall again by late 2016 although questions remain over inflation dynamics. While we expect an extended period of OCR stability, low inflation keeps the bias to the downside.

September 2015: Stepping up to the challenge (PDF 300kB)

The economy is soft but far from capitulating. Challenges exist, but key positives remain and our projections are of the “soft-landing” variety, with easier financial conditions and a still-decent economic backbone expected to see growth accelerate later next year. That said, the risk profile is still downwardly skewed. And while the key risks (China and now the weather) are not generally of the home-grown variety, a few more domestic vulnerabilities are creeping in too.

July 2015: Managing some unruly children (PDF 364kB)

The New Zealand economy is facing challenges. We characterise the outlook as having some “unruly children” to manage as opposed to the economy heading off the rails. Headwinds are mounting in the form of dairy stresses, fading incremental impetus from a city rebuild and global ructions. However, natural shock absorbers – a lower OCR and a weaker NZD – in association with solid migration, a still strong construction pipeline and better microeconomic foundations are expected to keep the economy on an even keel, limiting the downside to the business cycle before uplift over 2016.

March 2015: Quietly confident (PDF 428KB)

The New Zealand economy is well into an economic expansion and we are picking solid growth of around 3% per year over the coming years – a leader amongst global peers. There are challenges: Mother Nature, low dairy prices, and a high NZD. Yet these are dominated by support from construction, supportive financial conditions, business investment, net migration and still-elevated terms of trade. The main downside risk stems from offshore.