Reacceleration to stay the RBNZ's hand

While the economy lost some steam through the back half of 2018, that slowdown wasn't as stark as we feared, and a reacceleration in GDP growth is on the cards in 2019. Against that backdrop, we're not expecting any big changes from the RBNZ at this week's policy announcement.

Our hearts remain with those affected by the terrorist attack in Christchurch. While the economic consequences of those events are second order, there may be an indirect economic impact via political conditions.

New Zealand's GDP grew by 0.6% in the December quarter, a result that was stronger than we expected, but which was in line with market forecasts. That followed a modest 0.3% gain in the September quarter and saw annual GDP growth slowing to 2.8% - the first time it's been below 3% since September 2014.

But while the economy lost some momentum through the second half of last year, the extent of that slowdown hasn't been as stark as we had feared. Notably, the December quarter saw continued firmness in domestic demand, particularly household spending.

Coming into 2019, the data pulse has been a little mixed. On the downside, we've seen our own Westpac McDermott Miller survey of consumer confidence falling to below average levels, as well as ongoing weakness in business confidence. There's also been softness in house sales. However, on the other side of the ledger has been firmness in both retail spending and building consents, as well as strength in the global prices for New Zealand's key commodity exports (including dairy). On balance, recent developments leave us comfortable with our forecast for a reacceleration in GDP growth over 2019, particularly given the large increases in government spending now hitting the economy.

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