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NZ economic growth to slowly come off boil in next three years: NZIER survey

16 Mar 2015

New Zealand economic growth will slow over the next three years, while maintaining a "solid" pace, according to the NZ Institute of Economic Research's consensus forecasts.

The economy is expected to expand 3.3 percent in the year ending March 31, based on the median in the survey, slowing to a 2.9 percent pace in 2016, 2.8 percent in 2017 and 2.4 percent in 2018. The consumer price index will probably rise 0.5 percent in the current March year, accelerating to 1.6 percent in 2015, 2 percent in 2017 and 2.1 percent in 2018.

The survey comes ahead of gross domestic product data for the fourth quarter due on Thursday, which is expected to show a quarterly gain of 0.7 percent for an annual 3.2 percent. That would mark a decline from the third quarter's 1 percent expansion, which some economists say was exaggerated by a jump in mining activity and dairy production.

The local economy has benefited from migration-fuelled population growth, an improving labour market and low borrowing costs, while consumers are also benefitting from lower fuel costs. Households are also feeling wealthier as property values rise. More muted recent data, including core manufacturing and wholesale trade, has taken a small amount of shine off though.

"Q4 growth will continue to be largely led by domestic forces, with strong population growth, low interest rates and healthy household confidence boosting demand," economists at ASB said in a preview of the GDP data. "We expect these areas to remain key drivers of growth over 2015."

The NZIER survey has employment growing at 2.9 percent in the year ending March 31, slowing to 2.1 percent next year and 1.4 percent in 2017. The jobless rate may be 5.5 percent in the current year, falling to 5.4 percent in 2016 and 5 percent in 2017, the survey shows. Private sector average hourly earnings are seen rising 3 percent this year, 3.3 percent in 2016 and 3.4 percent in 2017.

In covering comments for the survey, NZIER said the slight cooling in the pace of economic growth may reflect residential housing activity, which has been a strong contributor to GDP because of home-building demand in Canterbury and Auckland.

"As the rebuild in Canterbury nears completion there will be some moderation in residential construction growth," it said.

Household spending was likely to remain "solid" although it may moderate "reflecting some degree of household caution," NZIER said, citing the survey results.

The exchange rate was expected to remain elevated through 2015, before gradually easing in following years, while interest rates are seen gradually lifting. The 90-day bank bill rate is expected to have averaged 3.6 percent in the year ending March 31, rising to 3.7 percent in 2016 and 4 percent in 2017. That contrasts with the Reserve Bank's projection's in last week's monetary policy statement, which was for 90-day bank bills to remain unchanged at 3.7 percent through 2017.

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