May 29, 2019

New Zealand Institute of Economic Research (Inc)
Media release 28 May 2019
Embargoed until 1am, Wednesday 29 May 2019
NZIER Quarterly Predictions, June 2019

Growth is expected to slow over the coming year before recovering from 2020, as detailed in the latest NZIER Quarterly Predictions. “We now expect annual GDP growth to average around 2.6 percent over the next five years. While this is well below the average of 3.4 percent over the previous five years, it still represents a sustained period of growth”, said Principal Economist Christina Leung.

Capacity pressures mean a more protracted growth cycle

Capacity pressures have limited the extent to which activity in some sectors have picked up. In particular, the construction cycle has been protracted, as capacity constraints hindered the ability of supply to meet solid underlying demand.

Nonetheless, there are areas of softness. Business confidence eased in the first quarter of the year, and businesses report reduced own trading activity. Weak profitability remains a negative development, with the potential for this to affect firms’ expansion plans.

Uncertainty over global growth outlook

On the global front, the escalating trade war between the US and China presents downside risks to the global growth outlook. Although demand from China for New Zealand exports is currently strong, we expect some easing in demand over the coming years. An easing in the terms of trade will reduce export returns.

Further monetary policy easing likely

The Reserve Bank surprised markets in March by signalling an Official Cash Rate (OCR) cut was likely. It followed through by cutting the OCR by 25 basis points at its May Monetary Policy Statement, citing concerns about a potential deterioration in the global growth outlook.

The central bank left the door open to further monetary policy easing. We expect the Reserve Bank will follow up with another OCR cut in September this year to boost economic activity.

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