Around we go again
|Our latest quarterly Economic Overview details some substantial changes to our economic forecasts. Storm clouds have gathered over the global economy, and New Zealand is getting caught in the downdraught. Monetary policy is riding to the rescue, and we expect that rising asset prices will help to shore up GDP growth. But propping up growth in this manner now will deepen the long-term risks in the economy.
The New Zealand economy has continued to soften this year. After expanding at rates of over 3% through 2018, annual GDP growth has slowed to 2.7% in the early part of this year. Adjusting for population changes, annual growth has now fallen to just 1.1%, its slowest pace in eight years.
The slowdown in growth was foreseeable in many respects. We've previously highlighted that the Canterbury rebuild would gradually wind down, net migration would slow, and the cooling housing market would dampen household spending. All of that has come to pass, and the resulting weakness in demand has been a significant drag on GDP growth over the past year.
However, we had expected to see the economy regain some momentum in mid-2019, due to low interest rates and increases in government spending. Instead, activity has remained subdued, with recent indicators pointing to quarterly GDP growth of only around 0.5% through the second half of 2019.
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