ASB Quarterly Economic Forecasts October 2013

Media release

ASB Quarterly Economic Forecasts October 2013

EMBARGOED until 5am Tuesday 22 October 2013

Back from Bondi

•          Net migration uplift adding to Auckland’s housing supply headaches.
•          New Zealand’s outlook buoyant on construction activity and stronger dairy incomes.
•          RBNZ still on track to lift OCR from March 2014, although US fiscal standoff highlights political risks to global outlook remain.

The New Zealand economy is showing further signs that the recovery is gaining momentum and on track to hit 3% growth next year, according to ASB’s latest Quarterly Economic Forecasts.

ASB Chief Economist Nick Tuffley sees the outlook as encouraging, “The Canterbury rebuild has been gaining traction, although not without a few fits and starts. Auckland is being buoyed by the housing market and is on the cusp of its own house-building pick-up.”

Rural prospects are on a more solid footing following a severe drought in the early part of the year.

Mr Tuffley says, “Dairy incomes are set to rise over $4 billion this season. Meat prices have also recovered from the drought-induced dip earlier this year. China’s growing appetite for red meat, as well as dairy, is an emerging positive to keep watch on.”

The large upswing in net migration inflows is an important change for the economy over the past year.

In the year to August 2013, the nation gained a net 12,848 migrants compared to the previous 12 months to August 2012, when New Zealand lost a net 4,118 migrants.

Mr Tuffley explains, “The primary driver of the major turnaround in the nation’s migration flows is the movement of people between New Zealand and Australia. Recently, unemployment has been falling in New Zealand but rising in Australia, perhaps persuading more New Zealanders to stay here, coupled with a large increase in the number of New Zealand citizens deciding to return home.”

“One positive is that Canterbury is seeing a disproportionately sharp upswing in migration, which will help feed its needs for workers to support the rebuild,” adds Mr Tuffley.

But the acceleration in the country’s population growth is a broader challenge for the housing market.

“Supply constraints in Auckland and Canterbury will continue to push up house prices in those regions. The long-term solutions involve making housing supply more responsive, cheaper, and freer of unnecessary hurdles,” says Mr Tuffley.

The lift in migration inflows has also become an additional factor the RBNZ must lean against when contending with the overvalued housing market, along with low housing supply and the impact of low interest rates stimulating borrowing appetites. 

Mr Tuffley says, “We continue to expect the RBNZ to lift the OCR in gradual steps, starting in March 2014, with short-term interest rates likely to be 150bps higher in two years’ time.”

Embargoed_ASB_Quarterly_Economic_Forecasts_221013.pdf

ENDS

© Scoop Media