It’s a wrap
|The next report will be published on 16 January 2017.
This is our final weekly commentary for 2016. And what a year it has been. The New Zealand economy has performed strongly. The unemployment rate has fallen to its lowest level since 2008, net immigration has hit new all-time highs, the OCR has been cut to an all-time low, house prices nationwide have continued to trek higher, the RBNZ has introduced further macroprudential policy tightening, and New Zealand has a new Prime Minister. And that's just at home. Abroad, after much umming and ahhing, the Fed has finally raised rates again, Britain has embarked on the path away from the EU, and the US has voted in favour of President Trump.
Looking ahead to 2017, there is no doubt that there will be more shocks and surprises in store. There are however, some more predictable themes we expect to emerge next year.
Front and centre after Prime Minister John Key's recent surprise resignation after eight years in office, is election uncertainty. New Zealanders will head to the polls some time before 18 November next year. And the nature of MMP means that anyone looking to form a government will probably have to rely on the support of more than one party. On the whole there's not a huge gap in the economic policies of the two major parties; both are relatively centrist. That said, views do differ in certain policy areas, including approaches to addressing housing affordability concerns. Immigration policy, superannuation and perhaps even monetary policy are other issues which may be up for debate during the election campaign.
New Zealand's housing market is another sector likely to remain under scrutiny in 2017. We estimate that annual house price inflation reached 14% this year. However, we're now forecasting a considerably slower pace of growth in 2017. Our forecast of 5% annual house price inflation next year comes after several years of double-digit gains. A key reason for this view is the outlook for interest rates. Although we expect the OCR to remain at its current level for the foreseeable future, around the world longer-term interest rates are heading higher. Markets have taken the view that a Trump presidency is likely to have inflationary consequences in the US on the back of a lift in spending. What's more, last week's well-anticipated decision by the Federal Reserve to hike rates was accompanied by a more hawkish set of forecasts than many had anticipated.
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