NZ: Growth slowdown under way - Westpac

Analysts at Westpac, suggest that they’ve revised down their NZ GDP forecast for 2018, but upgraded their forecasts for 2019 and 2020 as these changes reflect the impact of the new Government’s policies, but also the tone of the recent data.

Key Quotes

“Market opinion generally seems to be that the new Government’s policies will boost GDP, inflation and the OCR. We agree with that, but only up to a point. Increased government spending will certainly boost activity, but the crowding-out of private activity must also be considered. Meanwhile, the Government’s plans to cool the housing market and reduce net migration will weigh on the economy next year. Our view remains that the Reserve Bank will not need to raise interest rates until late 2019.”

“We noted that while global growth as a whole is improving, the mix of growth is not quite as favourable for New Zealand’s exporters. China – the dominant market for many of our agricultural exports – is starting to slow, as it looks to reorient away from the credit-fuelled investment that has driven growth in recent years.”

“The outlook for dairy isn’t gloomy by any means – we expect a farmgate milk price of $6.20/kg for this season, which is close to the average of the last decade. But it’s likely to leave farmers cautious about new spending and more focused on debt reduction, after two very poor seasons in 2015 and 2016 that put a severe strain on dairy farm balance sheets.”