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Expected economic pickup a no show

The latest ASB Quarterly Economic Forecast reveals that while 2019 has so far proved a comeback year for golfer Tiger Woods, it’s shaping up to be a sub-par one for economic momentum globally.

ASB chief economist Nick Tuffley warns that means it’s time to button up a protective winter coat rather than donning a radiant green jacket as the headwinds facing the economic outlook strengthen.

“Our earlier hopes that the New Zealand economy would gain a bit of momentum are waning as annual GDP growth is forecast to slow to just 2.2% in June this year.

“Demand in the economy appears to have softened across the board. Firms have been reporting poor trading activity since the second half of 2018, business investment growth has tapered off, and the construction sector is hitting capacity constraints. This loss of momentum is starting to impact on job creation.

“That all adds up to the need for added stimulus from monetary policy to jumpstart the economic pick-up. We believe the economy will strengthen, it’s just going to take longer than anticipated,” says Tuffley.

According the ASB Quarterly Economic Forecast May edition the one bright spot in the economy has been a strong export performance.

“That’s been largely led by the agricultural sector which has translated to robust growth in associated industries,” explains Tuffley.

Risks no longer looming internationally – they’re a reality

The global economic outlook has continued to weaken over recent months. According to Consensus Economic forecasts, New Zealand trading partners are likely to grow this year at the slowest pace since the Global Financial Crisis.

Consensus Economics forecasts for calendar 2019 put our trading partner growth at 3.5%, down from 3.7% three months ago and 3.9% back in September 2018.

“Unhelpfully the big distracting sideshows of the past year remain. US-China trade tensions have escalated to DEFCON 1. The US is back to imposing added tariffs on Chinese imports and Brexit woes are beyond woeful with an extension now to 31 October.

“Also notably, a little closer to home the Australian economy has taken a softer turn over the past three months due to the weak housing market impacting household spending,” says Tuffley.

More record lows on the horizon for OCR

In March ASB economists formally shifted to an easing bias, flagging 50bps of OCR cuts over the course of 2019, and in April they brought forward the timing of their forecast OCR cuts to May and August.

“Earlier this month, the RBNZ acted on this bias and cut the OCR by 25bps to 1.50% and, while the OCR outlook was “more balanced”, a slight easing bias remained. Given our view that some spare capacity in the labour market will remain and that the medium-term inflation outlook will remain benign, we have pencilled in a 25bp cut in August (1.25%).

“The timing of the next OCR move will depend on the tone of domestic data, the New Zealand Dollar, and global developments, and may come later in 2019. We expect the OCR to remain at its 1.25% record low until early 2022,” says Tuffley.

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:

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