Economic growth remains muted in New Zealand, though the June quarter GDP figures were no worse than expected and are unlikely to move the dial for the Reserve Bank. We expect no change in the OCR at this week's review, but we do expect a further cut in November. We think this cumulative stimulus will be enough to meet the RBNZ's goals, but it has options if more is needed.
GDP rose by 0.5% in the June quarter, following a 0.6% rise in the March quarter. Annual growth over the year to June slowed to 2.4%, the lowest since 2013 – though that was at a time when population growth was slower than it is today. In per capita terms, annual growth slowed to 0.8%, its lowest since 2011.
There have been several factors behind the slowdown in growth. Some of them were foreseeable and indeed inevitable: population growth has slowed as net migration has passed its peak, and earthquake reconstruction work is gradually running off after peaking several years ago. In the last couple of years, two more themes have been prominent: a slowdown in the housing market, and a sharp drop in business confidence.
The weak housing market has impacted households' willingness to spend via the wealth effect. Household consumption rose by 0.5% in the June quarter after a 0.4% rise in March, both of which were down on the pace seen in earlier quarters. However, we are expecting the housing market to pick up in response to the recent sharp drop in mortgage rates, which should shore up consumption.
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