Low business and consumer confidence levels, coupled with the Government’s emphasis on investment into rail over roading, will see economic growth begin to taper off in early 2019, an economist says.
Infometrics chief forecaster Gareth Kiernan says the economy will begin to lose some of its momentum in the first quarter of next year. He has revised down his growth expectations to 2.6% year-on-year, down from 3% during that period.
Although Kiernan is expecting a relatively strong 3% growth over the 2018 calendar year, there will be a number of issues at play throughout the year which will see that figure begin to pull back in 2019.
Among these is the Government’s emphasis on investment in rail rather than roading projects, which he says is likely to result in less growth in infrastructure spending in the near term.
Flagship projects such as the Auckland CBD-airport light rail link have a lengthy planning, design and consent process to go through, he says.
“Although we expect this rail project to proceed in the medium-term, there will be a lack of spending in the short-term with projects such as Auckland’s East West Link road being scrapped,” says Kiernan.
The fall in business confidence will also be a drag on growth, he says.
Figures from ANZ show small business confidence is at an almost decade low, with NZIER statistics showing a similar trend.
“With business being more cautious and less confident about the future, they’re going to potentially hold back on some of those investment decisions, whether it’s replacing existing capital, or expanding the business because they’re not sure about what the outlook will be over the next 12 or 24 months.”
This is an area where National’s finance spokesman Steven Joyce has been hammering Finance Minister Grant Robertson in Parliament.
Kiernan also points to disappointing dairy prices, capacity constraints in the labour market and the housing shortages across the country as reasons behind his downgraded forecast.
But Kiwibank senior economist Jeremy Couchman is slightly more upbeat than Kiernan.
He is picking economic growth in the first quarter of next year to come in at just over 3% and is much more optimistic about the 2018 year as a whole.
“In the second half of this year, we expect [economic growth] to pick up closer to 3.5% based on the fact some of the government’s [more fiscally expansionary] policies will start to come into force in that part of the year.”
He is expecting a much more conservative 2.7% annual growth figure in the first two quarters of this year, reflecting the subdued business confidence figures.
Both Kiernan and Couchman say headline business confidence numbers are unlikely to fall much lower for now, but much depends on how the Government’s new policies – particularly around employment – impact businesses in the coming months.
Business confidence - Activity outlook
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14 Comments
Better to take a long term investment out look rather than a short term. Remember NZ is in the process of building a real economy not a false one that our last government had us tethered to that was almost entirely depending on house price growth.
As the NZD cools to more realistic levels that will improve; Exports, tourism and business investment = growth.
Not sure where you have been living the last few years - but exports , tourism and business investment have all grown massively in the last few years - despite a high NZD rate - which has in turn kept in check inflation and reduced many everyday costs such as fuel as well as larger expenditure in whiteware, cars and household goods.
https://www.stats.govt.nz/information-releases/international-visitor-ar… gives you the tourism numbers - huge year on year growth the last five years and now around 8% of total workforce - and bigger revenue than dairy
Similar great numbers for Exports - with key performers - meat / kiwifruit / wine / wood /honey etc - many smaller industries have also enjoyed huge growth - film and boat building for example
a significant cooling of the NZD will certainly lead to inflation and that effects everybody significantly - costs of essentials - food and fuel in particular rising quickly
You mention a real economy being built - but not sure that artificially high wages, subsidised homes, increased welfare for the middle class, yet more subsidised public transport and a billion trees constitutes a real economy -
Now if you talk about increasing outputs to inputs - more higher value jobs - increases in value of products made it might be interesting - as these are far better indicators of an improving real economy
so far we have a lot of inquiries - most of which we have already had - another tax working group, another regional development, another mental health enquiry, another CYF's investigation and witch hunt - another housing inquiry and some broad statements about planting some more trees - building affordable box houses - ( they will be cramped 80sq 3 beds at best) and reducing the prison population by over 3000 people
I am all for investment model and practice that in both my home and professional life - but not quite seeing that here - cancellation of several projects, obliteration of several good things such as national standards with no replacements and plenty of anti business rhetoric -
Small businesses are the back bone of the country - the majority of people actually work in them - not for the government or the Fonterra's of the world - if those people lose confidence that is where jobs will be lost - not created - and the like - This government would do well to remember this and that perception is more powerful than substance - ie the repeal of the 90 day legislation - despite watering down the substance for small employers - the rhetoric and perception of Union love ins has been very damaging to small business confidence
A high or a low dollar creates winners and losers depending on where/what one is positioned. There will always be businesses closing the doors that is the nature of the beast.......not everyone going into business has done their homework or has the necessary acumen to navigate the system.
Business confidence isn't derived from one business.....business confidence surveys cover a plethora of business types.....
Some good points kpnuts. Tourism, and our commodities industries have had very good years recently. A lower NZD should help the export sector, especially if fuel prices stay low in USD terms. Bad for the consumer obviously, but good for a small exporting nation.
It is a pity that with a strong economy, National did nothing about housing and immigration, although I suppose they acted in line with their values so I can't really say that they underperformed against their own goals.
You'll probably never get a party that you agree 100% with, but I am glad that the new government has highlighted housing and immigration as a concern, which is the first step in doing something about it.
I would argue with you that recent business surveys are irrelevant, in that I would say that the recent drop in confidence is more a protest vote on the election result than an actual decline in business confidence. Surely with such a buoyant economy as you point out, businesses are focussed more on what they are doing in their own industries, rather than losing sleep about the new government.
Also, how many employers do you know that pay "artificially high wages"?
Does the average NZer or household really care what the GDP figure will come out as?
They are more interested in whether their wages will improve (by slowing mass immigration and asset sales and rebuilding Govt encouragement of business devt in regions), and that their household costs will taper (by dampening down mass immigration, ban foreign buyers, break up large corporate duopolies).
The GDP or similar per citizen is surely more important.
The previous methodology of false manufacture of an overall ‘GDP’ figure was of little benefit to each citizen.
While GDP is an in accurate statistic this web site is probably not a site that the average house hold looks at nor has the average working person ever taken an interest in GDP. Economists are well aware of the methods of GDP versus other methods. Your statement is more a policy statement and policy outcome for communities are not reflected by GDP alone. Your statement is a reaction from your gut rather than a reasoned statement. You are venting your frustration at the GDP model. Raging against the system that you feel is destroying your life. If you want to provide some statistics for your argument than look no farther than germany where there are attempts by the statics gathers to identify who own what in society and it appear the wealthy own far more then was previously assumed. Rather then labour supporters flocking to sites like this to vent there revolution they might be better served by providing a well researched arguments that shut down the arguments for ever expandiing growth models that do not provide for a more equitable distribution of wealth.
accountingsoftware,
Firstly,
Some elementary exercises in 'there' and 'their', along with general grammatical process might be in order.
Secondly,
OP is very correct. The GDP figure is both extremely important and arbitrary to the normal person. In the first instance it acts as a huge signal as to where said agents own economic position should be headed. Arbitrary in the fact that the relationship between aggregate and individual (in the case of GDP) is not neccessarily reconcilable. One just has to look at the chasm between aggregate and individual productivity.
OP wasn't showing abhorrence for the GDP model, at all, they were merely pointing out this fact that I highlight and you are obviously unaware of.
Thus OP's point was much more valid than the "rant" you write it off as (ironically reading your comments).
Based on our current Monetary system, GDP figures are largely "illusionary", or meaningless.
The unit of measure for GDP is the "$dollar".
If we increase the money supply by 10% in a yr , and GDP grows by 3%,... what does that mean..??
If we had a fixed money supply, and as prices, and maybe wages, declined thru productivity gains, ..how would GDP look then..??
With money supply always growing , its like taking a ruler and arbitrarily adding a few cms without changing the length, ..and then saying you have grown taller.... its a nonsense.
You may argue that they use a deflator when calculating real GDP , but the deflator is related to CPI movements and is , largely, unrelated to actual Money supply changes. ( which it should be , if the unit of measure is "money". )
In "debt capitalism"... continual GDP growth becomes critical , in order to service the debt burden.. The main way this is done is to create more debt.. ie.. money supply growth, .. This gives us the comforting illusion of...."healthy GDP growth ".
This is why GDP growth figures are such a..."Big Deal "..
In 1985 money supply was $85 billion
Last time I looked it was about $300 billion
just my view...
ps... Even thou I do not like "debt Capitalism", and believe it is one of the main causes of wealth inequality, I do admit that under this system we have had some amazing productivity/innovation waves..
Problem is... Debt capitalism is a "model" that is unsustainable, and has an end. ,,, (which will be a beginning for something else.), ... but I'm guessing there will be some extremes before this happens..
Best laid plans etc etc. NZ a remote and small economy goes where the world takes it, just like flotsam & jetsam. In some ways that comes out to be beneficial in that we middle out. Don’t get real too high & don’t crash either with too much collateral damage. So if Russia moves on Ukraine, or a Baltic State, cuts off energy to the EU, if Trump & NK have actual fisticuffs as might Saudi & Iran yet over Yemen or Qatar, or Greece is kicked out of the EU, if China takes actual possesssion of disputed Islands, but mostly if Wall St self destructs once again & finance houses once again fail, NZ will be impacted whether it likes it or not. Anyway keep planning, keep predicting, nothing to say any of the above dire doomstering will happen this year , or next or even whenever.
The rate of change of mortgage lending and population growth are declining or becoming negative. Auckland house prices are so obscenely expensive that even the top 5% of earners are priced out. These effects were baked into the cake early in 2017 or before, however the economy seems to take a long time to respond. I imagine that Steve Keen would advocate the government opening up the cash spigots with deficit spending to prevent a recession. I imagine National party strategists will be hoping all this plays into their hands. Tough years ahead
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