NZ ECONOMY HUMMING ALONG
11 February 2016 – No drought and net immigration have helped New Zealand’s economy go on growing, with economists revising GDP predictions upwards
The New Zealand economy is humming along quite nicely at present, and the low-point in fixed interest rates has not yet arrived. That’s the opinion of Dominick Stephens, the Chief Economist of Westpac, in the bank’s latest Economic Overview.
There’s more good news, too. GDP forecasts have been revised, and they’ve gone up from growth of 2.4 percent in the 2015 calendar year to a predicted 2.6 percent in 2016 and 2.9 percent in 2017. ‘That’s mainly because New Zealand dodged the feared El Niño drought,’ writes Dominick. ‘But we’ve also seen very impressive growth in tourism and Auckland construction. Overall confidence has held up better than anticipated, perhaps aided by low interest rates, cheap petrol and strong population growth.’
As always, though, the economists’ forecasts are tempered with caution.
‘The performance of the economy in recent months has been pleasing, but there are still some things to keep an eye on,’ Dominick warns. ‘The nation faces at least three years of below-cost returns in its biggest export industry, dairy. Surely it is only a matter of time before that has a more telling impact on the wider economy. ‘And then we will face the wind-down phase of the Canterbury rebuild. I can’t help wondering whether confidence surveys will soon turn south again.’
Looking further ahead, the forecast for 2018 suggests GDP growth will continue, albeit at the lower level of 1.5 percent. However, one of the factors identified in the overview is that GDP growth is becoming increasingly dependent upon population growth. If population growth is running at 2 percent a year, that means per capita growth will be only a whisker above zero, it suggests. Recent variations in labour statistics don’t necessarily mean there will be further meaningful growth in the near future.
Westpac’s Economic Overview summarises the outlook for the New Zealand economy, global economy, agriculture sector, interest rates and exchange rate. This quarter's special topic covers New Zealand's commitments under the Paris Protocol. Read the full report here.
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