NZ: Economy to outperform again in 2017 - HSBC

According to the analysts at HSBC, the NZ economy is firing on all cylinders, with construction and tourism continuing to pick up and the dairy sector recovering and is likely to outperform again in 2017.

Key Quotes

“We have been optimistic about New Zealand’s economy for quite some time now, and we remain so. Growing ties to Asia, underlying flexibility and a positive reform agenda have all worked in New Zealand’s favour.”

“Firing on all cylinders, again

• Construction activity is set to continue to grow, driven by housing and infrastructure, although capacity constraints are starting to appear
• The tourism sector continues to boom, driven by rising visitor numbers, particularly from Australia, China and the US
• Dairy prices have rebounded and should boost rural incomes, although production volumes will most likely continue to be cut”

“Managing a housing boom

• Auckland house prices have more than doubled in the past five years and prices are rising strongly in most other regions
• Tighter macro-prudential settings have reduced higher risk lending, but household debt has still risen rapidly and reached record levels
• Housing affordability is expected to be a key issue in this year’s election, which is due to be held before 18 November”

“Inflation to edge higher and rates may follow

• Inflation has been below the RBNZ’s ‘near 2%’ medium-term target for five years, despite strong economic growth
• We expect that CPI inflation is now past its trough and should lift as the impact of lower petrol prices diminishes
• There are signs that domestic price pressures are gradually building, which is expected to pave the way for higher interest rates in 2018”