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ECONOMY JUST ‘TAKING A BREATHER,’ SAYS WESTPAC

by Simon Lord,
last updated 12/08/2014

in this article:

12 Aug 2014 - Westpac’s quarterly summary of the prospects for New Zealand's economy suggests some of the shine has come off our growth story, but it’s only temporary

‘Over the past few months just about everything relevant to the New Zealand economy has softened. Some might be tempted to view this as an important turning point in the New Zealand economic story. We don’t. While this slowdown is important, we would describe it more as a "breather" in the midst of a broad and ongoing economic upswing.’ So says Dominick Stephens, the Chief Economist for Westpac, in his introduction to the latest Westpac NZ Economic Overview.

As the Global Economy section of the report explains, the current slowdown in Chinese consumer demand is serious, but will prove temporary. The Agricultural Outlook section outlines the painful impact falling dairy and log export prices will have on rural New Zealand this year, but argues that prices will start to recover towards the end of the year. The Domestic Economy section discusses a very real ‘slow patch’ in the domestic economic data and the housing market, but argues that these will prove fleeting. ‘Frankly, it is hard to envisage the economy and housing market remaining weak when net immigration is set to hit an all-time high of almost 50,000 people per annum,’ says Mr Stephens. ‘Economic growth will remain reasonably robust for another couple of years yet, in our view.’

‘Finally, the Inflation and Interest Rates section reminds us that the Reserve Bank’s current pause is just that – a pause. We do not doubt that the RBNZ will resume its programme of OCR hikes early next year.’

As an economist, Mr Stephens is bound to temper his optimism with caution, saying, ‘The New Zealand economy is on a trajectory that could one day [our italics] culminate in a sustained economic downturn involving a significantly lower exchange rate, slower GDP growth, falling house prices and falling interest rates. But we don’t expect that to happen until well after the Canterbury rebuild has passed its peak and interest rates have reached a level that can’t be described as ‘ultra low’ by historical standards. By our reckoning it will be a number of years before New Zealand enters a more lasting downturn.’

The suggestion that the economy is ‘taking a breather’ with slightly reduced expectations matches the findings of the recent Franchising Confidence Index, which showed franchisors very positive about growth prospects although service providers were more cautious.

The full Westpac NZ Economic Overview can be read here.

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