Northland Property Investors' Association

northland@nzpif.org.nz

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27-05-2015

NZ economy remains solid, growing at around 3% until 2017

NZIER Quarterly Predictions, June 2015

Strong net migration, a booming Auckland and the Canterbury rebuild are boosting New Zealand’s economy. Growth is expected to remain solid at around 3% per year out to 2017. This is a healthy outlook, especially compared to many other economies around the world that are struggling to pick up after the GFC.

This robust growth will flow into around 130,000 additional jobs over the next two years, with the unemployment rate dropping to 5.2% by early 2017. Wage growth will be somewhat muted however at around 2.5%, primarily due to weak inflation pressures and an expanded labour force from strong net migration.    

Quarterly Predictions, an independent take on the New Zealand economic outlook is available exclusively to members of NZIER.

But there are storm clouds ahead

Despite a broadening recovery, the outlook faces numerous challenges. The dairy price drop has left a $6 billion hole in rural incomes. The Auckland housing market still looks very bubbly and vulnerable to a sharp correction. Recently announced policy changes by the Reserve Bank and Government should only dampen housing demand at the margin. The Canterbury rebuild is close to its peak and its growth impetus will start to fade. And the global economic outlook is far from certain, with China and Australia both softening.

The Reserve Bank is in a bind; we expect no rate cuts   

There is almost no general inflation pressure in the New Zealand economy. Imported deflation and price-sensitive consumers are maintaining a lid on prices. We expect inflation to stay below the middle of the Reserve Bank’s target band well into 2017.

Ordinarily this, and the uncertain global situation, would warrant an interest rate cut but the Reserve Bank can’t afford to throw any more fuel on the Auckland housing market fire. We can see no alternative other than to hold rates steady until mid-2017.

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