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Don’t worry, be happy (please)

• New Zealand growth outlook is expected to pick up.

• Trade tensions and talking ourselves into a slowdown remain threats to economic growth.

• Healthy export earnings and house-building resurgence adding layer of protection.

ASB economists are clinging to their positive song sheet this quarter and once again urging the New Zealand business community to realise that, while yes there are some troubles, if we worry we’ll make it double.

The plea comes on the back of the latest ASB Quarterly Economic Forecast, which reveals New Zealand’s economic outlook is being supported by solid domestic fundamentals and good global growth prospects.

ASB chief economist Nick Tuffley says there’s been enough Chicken Little talk because despite the downbeat perception, New Zealand’s economic growth is actually expected to pick up momentum and head back to a 3+% pace heading into 2019.

"We continue to expect economic growth due to a combination of factors, including population growth continuing at above-average pace, even as the net migration inflow gradually slows. Plus, worth smiling about are high Terms of Trade courtesy of strong export prices and improving labour incomes,” Tuffley says.

ASB economists have also updated their interest rate forecasts, with interest rates now expected to remain lower for longer, providing yet another pillar of support to the NZ economy.

“The cautious RBNZ assessment and our expectation that CPI inflation will remain low have seen us push out the start of the next expected RBNZ tightening cycle to February 2020, from November 2019 previously.

“The government is boosting the fiscal stimulus with added welfare support already hitting bank accounts, along with additional infrastructure developments. We also expect that households will increase spending in line with income growth as employment conditions remain favourable.

“Nonetheless, our relatively upbeat outlook is overshadowed by a number of growing risks which, if they eventuate, may see growth underperform our forecasts. But we’re hopeful the risks won’t become reality,” Tuffley says.

Trade tensions and talking ourselves into a slowdown are threats to economic growth

A key risk stems from the recent trade spat between New Zealand’s major trading partners, the US and China. But currently, ASB economists anticipate the tariffs announced so far are only likely to have a small impact on global economic growth.

“In particular, we expect Chinese economic growth would only fall by 0.2 percentage points. However, there is a growing possibility that trade tensions escalate further, and in which case, increasing trade restrictions which would hamper global growth and weaken one of New Zealand’s key economy support pillars,” Tuffley says.

Another risk the ASB economists hope will soon pass is New Zealand’s low level of business confidence, which has now persisted for nine months.

“There is a weak confidence across various industries, which is surprising given some are seeing ongoing demand growth. This highlights the need for government officials to manage expectations because business has genuine anxiety about potential shifts in government policy, such as industrial relations, which won’t recede until clarity is provided.

“If ever there was a time to ‘fake it until you make it’ and ‘stop worrying and be happy’ – it’s now, or soon business will have the whole country listening to ‘the blues’ as a result of holding back investment and talking ourselves into an economic slowdown,” Tuffley says.

Healthy export earnings and house-building resurgence adding layer of protection

The ASB Quarterly Economic Forecast shows that what is helping keep the country on the right note is our net exports and house-building. NZ’s Terms of Trade are holding not too far off their recent record high, courtesy of strong export prices. Housing construction is set to surge again later this year with the number of building consents issued over recent months considerably stronger than expected.

“This has led to some sizable upward revisions to our near-term construction outlook. Yet, we believe we’re close to the peak in construction, with some drag likely from the commercial construction sector given its challenges.

“Near-term growth in construction will offset declines in other forms of business investment such as plant and machinery, and we still expect strong GDP growth over the rest of 2018, giving us something to smile about,” Tuffley says.

Additional video commentary from Nick Tuffley can be accessed online at While the latest ASB Quarterly Economic Forecast will be available online at

Other recent ASB reports covering a range of commentary can be accessed at our ASB Economic Insights page:

@ASBBank @ASBMarkets


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