May 30, 2018

New Zealand Institute of Economic Research (Inc)
Media release 29 May 2018
Embargoed until 1am, Wednesday 30 May 2018
NZIER Quarterly Predictions, June 2018

The New Zealand economic outlook remains positive even as population growth continues to slow, as detailed in the latest NZIER Quarterly Predictions. NZIER forecasts annual growth in GDP per capita to lift to around 2 percent by 2022.

“Although businesses remain downbeat in the wake of the new Government taking office, own trading activity is holding up. This suggests demand remains solid”, said Principal Economist Christina Leung.

Net migration continues to slow

A continued easing in the number of people coming into the country, and a lift in departures out of New Zealand, is driving further slowing in net migration. This partly reflects the effects of the tightening in migration policy last year. Businesses are already reporting acute labour shortages, and a continued slowing in net migration is likely to exacerbate these shortages.

Despite this migration-led slowing in population growth, we expect a solid pipeline of construction over the coming years, reflecting the lagged effects of the strong population growth of recent years. Demand for residential construction remains concentrated in Auckland, with a growing recognition that high-density housing will be required to meet the high level of demand.

Export outlook brighter, but with risks

“The recent announcement by Fonterra of an upgrade to its milk price payout for the current 2017/18 season to $6.75 per kg of milk solids, and a solid opening forecast for the 2018/19 season of $7.00 per kg, bodes well for the export outlook. However, the recent outbreak of Mycoplasma bovis poses downside risks, particularly to confidence in the agriculture sector which had only just started to recover”, Leung said.

We now expect an OCR increase in mid-2019

“There is growing conviction that monetary policy will be tightened globally. However, with the overall inflation environment here in New Zealand contained and a dip in inflation expectations, there is no urgency to tighten monetary policy. We now expect the Reserve Bank to increase the OCR in mid-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, 021 992 985