NZIER expects growth to moderate as population growth slows, Quarterly Predictions - March 2018

New Zealand Institute of Economic Research (Inc)
Media release 28 February 2018
Embargoed until 1am, Wednesday 28 February 2018
NZIER Quarterly Predictions, March 2018

The New Zealand growth outlook remains positive, as detailed in the latest NZIER Quarterly Predictions. Businesses are feeling more downbeat following the General Election but the effects so far have largely been on sentiment rather than actual economic activity. Annual average growth is forecast to average below 3 percent over the next five years.
“We expect slowing population growth will moderate economic growth over the next few years, but many positive factors remain”, said Principal Economist Christina Leung.

Outlook for exports brighter

“The near-term risk of drought affecting milk production has reduced with the recent rainfall. Commodity prices are also recovering as demand in the major economies picks up. The implementation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership will improve access to a wider range of export markets – especially Japan. All this points to a brighter outlook for our exporters.

However, with net migration continuing to slow and the Government indicating it would look to tighten migration settings, we expect the lagged effects of slowing population growth on economic activity to be evident from 2021. We expect growth in GDP per capita to lift to around 1.8 percent by 2021”, Leung said.

Inflation contained outside of housing

“Construction cost inflation is moderating from high levels. Outside of housing, inflation remains contained, with core inflation measures and longer-term inflation expectations stable. Although the recent rebound in the NZ dollar will bring down the price of imported household goods in the near term, we continue to expect annual inflation to lift to the Reserve Bank’s 2 percent inflation target mid-point over the coming year”, said Leung.

We now expect an OCR increase in early 2019

“With inflation muted, and uncertainty over the effects of the new Government’s policies on economic activity, there is no urgency for the Reserve Bank to start tightening monetary policy. As a result, we have pushed back our expectations of when the Reserve Bank will lift the OCR to February 2019.”

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