Economists have a slightly less rosy view of economic prospects than they did three months ago, with predictions of economic growth now a touch lower and unemployment higher.
Projections of residential investment over the next year or so have been marked back quite strongly - albeit from very high figures - with growth in residential investment in the March 2016 year now expected to be 8.2% compared with 11.4% just three months ago. This at a time when the Government is looking to ramp up residential construction activity in Auckland to alleviate house price pressures in the region.
New Zealand Institute of Economic Research senior economist Christina Leung said the June NZIER Consensus Forecasts show that economists have pared back growth expectations slightly since the March quarter survey.
"Activity indicators over the past quarter have been mixed, with global dairy prices continuing to fall but household spending remaining strong," she said.
"Despite the slightly weaker expectations for the New Zealand economy, growth is still expected to be fairly solid out to 2018. Forecasters expect growth of 3.3% in the March 2015 year [the actual figure is set to be released on Thursday], moderating to 2.8% and 2.7% in the following two years."
In the March survey the predicted growth figure for March 2015 had been 3.3% - so unchanged. But the figures for both 2016 had been slightly higher at 2.9% and 2.8% respectively.
Leung said strong residential construction was a key contributor to GDP growth over 2014, driven by house-building demand in Canterbury and Auckland.
"While forecasters have wound back the extent of residential construction growth expected over 2016 and 2017, the level of activity is still expected to be very elevated. A further ramp-up in house-building in Auckland will offset the reduced growth impetus as the Canterbury rebuild nears completion."
Forecasters are still picking an improvement in unemployment levels - but have trimmed back their expectations a little. Unemployment's picked to be 5.5% in March next year (against a 5.4% pick three months ago), falling to 5.2% (5% previously) the following year. Leung said that there was quite a divergence of opinion among economists on unemployment. "...Some expect a sharp lift in the unemployment rate due to strong migration expanding the labour force."
Expectations of inflation remain very benign, with the Consumer Price Index not expected to rise to the 2% mid-point of the Reserve Bank's targeted 1-3% level till March 2018.
Many economists were clearly caught out by the Reserve Bank's decision last week to reduce the Official Cash Rate to 3.5% from 3.5%. The survey was taken prior to cut.
Therefore the picks on interest rates and the currency have already been proven to not be accurate. The 90 day bank bill forecasts in the survey indicate economists overall had expected interest rates to remain on hold over 2016 and 2017, with a lift in 2018.
The New Zealand dollar fell to 73 on the Trade Weighted Index in the wake of the OCR announcement. Forecasters had expected a TWI of around 76 for the year to March 2016. Beyond that, the TWI is expected to ease below 72 by March 2018. This is still above the average over the past two decades.
Leung said there was much more uncertainty over export volume growth. Average expectations were that export growth would pick up over 2016, but some expect very weak export growth over the next year. "Slowing activity in our key trading partners, China and Australia, is a risk to the export outlook."
3 Comments
Its slowly dawning on me just how important forecasts are to the economy. For example if you are involved with a manufacturing plant, in order to justify the capital expenditure for a project you would have to subscribe to the banks forecasts plus financial organizations such as the above. Create a spreadsheet with the forecasts for growth/recession (demand for your product), future interest rates etc add a grain of salt, do a few sensitivity scenarios and finally make a recommendation to your board (of illustrious directors).
I wonder how many private people do the same when buying a house?????? Where the purchase is infinitely larger to their own financial future. I'm not talking about the bank doing one on them, but they doing one on themselves. ie The real one. Involving variables such as probability of retaining their job for 25 yrs, probability of getting married/ having children, likelihood of wanting to stay in that suburb once children are born given the likely quality of schooling, the probability that the (incompetent) Councils' rates bill will increase ten fold ......
Most things in life need a leap of faith in the future.
There is a proverb: if the farmer keeps looking at the weather, he'll never sow the seed for harvest (or something along those lines).
That's why so few young people are entrepreneurial - they endure 16 years schooling of doom and gloom, global warming, social problems, etc. lots of analysis but no action. why bother they think.
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