Last week the Westpac economics team released its regular Quarterly Economic Outlook (for those not already receiving this publication directly in your inbox, you can download a copy from our website: http://www.westpac.co.nz/business/ economic-updates/economic-research-and-strategy/ under the Quarterly Publications tab). In it we detail some of the big issues facing the New Zealand and world economies as well as the outlook for developments in fi nancial markets including the exchange rate and interest rates.
Domestically, growth in the New Zealand economy is forecast to gather pace this year but the composition is changing. From a very weak starting point construction activity is expected to gain momentum while a strengthening housing market should support some improvement in consumer spending. In contrast further fi scal belt tightening and a lesser contribution from the agricultural sector will be a drag on growth.
Last week’s data on building consent issuance, which rose 2.1% excluding apartments in June, reinforced our views to some extent. Canterbury consent issuance was down a touch, but over the June quarter as a whole is up 12% on the previous 3 months.
However signs are more mixed for the rest of the country. We have long been expecting a modest lift in building activity elsewhere in New Zealand – particularly in Auckland. Although the Auckland housing market has continued to gather momentum in recent months (Barfoot and Thompson report that July 2012 was their strongest month of house sales since July 2007, with prices 11% higher than a year ago), the pace of residential consent issuance in the region has noticeably slowed. While we retain our view that more house building will eventually need to take place in Auckland, the pickup is probably taking longer than we anticipated.