Slowing momentum

Recent data has reinforced our view that the drivers of New Zealand's economic growth are becoming more mixed. This week's GDP data is likely to show that annual GDP growth slowed to 2.8% in the March quarter – its slowest pace since September 2014 – as momentum in the household and construction sectors has faded. But although New Zealand's economic cycle is maturing, it's certainly not all doom and gloom. The strong terms of trade is one noticeable bright spot, with strong incomes in the export sector set to provide a key role in supporting growth.

Much of the slowdown in economic activity has been centred on the household sector, with the cooling in the housing market a key influence. On that front, May REINZ data showed that seasonally adjusted sales were down 0.7% in the month and the average number of days to sell has increased. Nationwide prices eased 0.2% in May, following a similar decline in April.

But beneath the headline result, there are marked differences across regions. The slowdown in the housing market has been most keenly felt in Auckland (and to a lesser extent Canterbury). In Auckland, house prices are now falling gradually on a monthly basis, are down 2% since February. Average prices in the region are now back at August 2016 levels.

Outside of Auckland, house prices rose a touch in May, and are up 6.8% on a year ago. But even that's still a much more gradual pace of growth than we've seen in recent years. A year ago, annual house price inflation outside of Auckland was running at a rate of 11%, and two years ago it was almost 16%.

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