ASB Quarterly Economic Forecast February 2013
Year of the Snake promises to be a year of twists and turns as economic momentum builds
· New Zealand Dollar likely to remain stubbornly elevated.
· 2013 economic outlook to be shaped by the Canterbury rebuild.
· Growing possibility RBNZ may reach for its macro-prudential toolkit.
ASB’s latest Quarterly Economic Forecast reveals the RBNZ Governor faces a difficult dilemma this year: how to balance muted inflation pressures against the emerging housing market pressures and lift in credit demand.
ASB Chief Economist Nick Tuffley says, “We think it is likely the OCR won’t increase until the first quarter of 2014. But there is a growing possibility the RBNZ will reach for its macro-prudential toolkit to cool the housing market and credit growth in order to delay using OCR that long.”
Adding to the pressure is the New Zealand Dollar which is likely to remain stubbornly elevated, although Mr Tuffley observes the impact of the high NZD is spread unevenly across the trade-exposed sectors of the economy.
“Import-competing manufacturers have faced more widespread headwinds relative to the manufacturing export base, which gets some shelter from a large exposure to Australia.”
On reflection Mr Tuffley says 2012 was a year of modest NZ growth coupled with encouraging signs that Canterbury’s rebuild was getting underway.
These themes are likely to repeat in 2013, but by the end of the year ASB expects a better local economic performance and a bit more progress in getting on top of the developed world’s various debt woes.
Mr Tuffley says, “Global growth should be similar to last year at upwards of 3.3% – overall near the long-term average but with risks continuing to hover in the background.”
“NZ’s recovery was modest yet patchy over 2012, but we expect momentum to pick up over 2013. Earthquake rebuilding is gearing up in Canterbury along with other signs that the region’s economy is starting to rebound.”
“Rebuilding activity will be a key driver of higher overall NZ growth. The broader housing market is likely to continue strengthening, particularly in Auckland, further boosting house building. Greater building activity will filter through to the wider economy.”