August 30, 2017

New Zealand Institute of Economic Research (Inc)
Media release 30 August 2017
NZIER Quarterly Predictions, September 2017

Strong net migration, high tourist inflows and further improvement in rural sector incomes continue to point to a solid outlook for the New Zealand economy, as detailed in the latest NZIER Quarterly Predictions. “Although GDP growth and inflation were soft at the start of the year, recent indicators point to a pick-up in activity from the second half of 2017”, said Principal Economist Christina Leung.

Strong migration and tourism boost construction demand

“Construction demand remains very strong despite a dip in activity in the first quarter of 2017. Strong migration and tourist inflows continue to support demand for housing, hotels and office space.

Fonterra’s upward revision to its milk price payout forecast for the next season means profitability is continuing to improve for the rural sector. Although farmers remain focused on paying down debt we expect an improvement in on-farm investment over 2018”, Leung said.

Heightened geopolitical tensions continue to present a downside risk to the global growth outlook. For now, the effects on real activity have been muted, with growth picking up in many major economies.

Inflation lower than robust growth suggests

“Inflation eased in the June quarter, reflecting lower prices for petrol and imported household goods in the face of a competitive retail environment and high NZ dollar. Beyond the quarterly volatility, inflation has been subdued and lower than what the robust growth rate and extent of capacity pressures in the New Zealand economy would suggest. Although we expect further capacity pressures will underpin higher inflation, the lift in inflation is unlikely to reflect the extent of growth as suggested by traditional relationships given structural changes such as technology”, said Leung.

No urgency for the Reserve Bank to lift interest rates

“Low inflation adds to the case there is no urgency for the Reserve Bank to lift the OCR. We now expect the Reserve Bank to leave the OCR on hold until November 2018. Recent developments afford the Reserve Bank time to assess the situation before commencing its tightening cycle.”

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