NZ Economy: A case of nerves - Westpac

Analysts at Westpac, suggest that with earlier drivers of NZ’s growth dissipating and big changes in Government policy on the cards, business confidence has been plunging, which reinforces their expectation that we’ll see softer growth over the coming year.

Key Quotes

“The New Zealand economy is in for a big shake up over the next few years, with a new Government and some significant changes in economic policy on the cards. At the same time, several of the key drivers of economic activity in recent years have been dissipating. Most notably, net migration has turned, the housing market has cooled, and construction activity is slowing.”

“Against this backdrop, it’s no surprise that businesses are feeling nervous. But what is surprising is just how far business confidence has dropped.”

“Furthermore, it’s not just confidence about the general economic environment that has declined. Businesses are nervous about what’s happening to conditions in their own firms, with large falls in sentiment across industries in recent months. And that is very important.”

“Our expectations for softening economic growth are in stark contrast to forecasts from the Reserve Bank, which assume continued firm economic growth over the coming year. We expect that the RBNZ will be disappointed by the state of GDP growth over 2018. Indeed, business surveys are already pointing towards weaker investment spending and hiring that the RBNZ is counting on. We expect the RBNZ will become more dovish over time, in line with our own backof-market forecast.”