The Reserve Bank’s forecast for economic growth has been branded “excessively optimistic” by a top economist but the central bank maintains its Gross Domestic Product (GDP) projections are “perfectly balanced.”
Westpac chief economist Dominick Stephens says economic growth will fall short of the Reserve Bank’s expectations which will have “implications for their views on monetary policy.”
In its Monetary Policy Statement (MPS) released on Thursday, the bank said it expects annual GDP growth to accelerate to 3.4% this year and to 3.5% in 2019.
“[GDP growth] is expected to strengthen, driven by accommodative monetary policy, a high terms of trade, Government spending and population growth. Labour market conditions continue to tighten,” the statement says.
The Reserve Bank has revised down its economic growth expectations from its November MPS – growth expectations Stephens at the time called “extremely optimistic.”
“They have addressed that and toned down how the Government’s [policies] are going to affect the economy – but the fact remains that their growth forecasts are higher than ours.”
Speaking to media after the MPS was released, Acting Governor Grant Spencer said the Reserve Bank has had more time to consider the impact of the policies, which show a reduced fiscal impact in the short term.
“In November, we had talked about a half percent impact on GDP from increased Government spending. That’s now pulled back overall to about 0.4%,” Spencer said.
Despite this, Stephens says the central bank’s forecasts are still “excessively optimistic.”
He says the recent plunge in business confidence portends a slowdown in business investment that the Reserve Bank has not allowed for and he doubts construction activity will be as high as the central bank is picking.
“Furthermore, we expect the Government’s upcoming changes to the tax treatment of investment housing, the foreign buyer ban, gradually rising fixed mortgage rates and lower net migration will slow the housing market later this year,” he says, adding that a slow housing market would lead to slower consumer spending.
"Westpac is not expecting any movement in the official cash rate until 2019."
But Spencer does not think the Reserve Bank’s forecasts are not excessively optimistic or excessively pessimistic – “we think we are perfectly balanced,” he told media.
“We have been forecasting and seeing strong growth in the economy – notwithstanding the weakness in the second half of 2017, it’s been a pretty strong performance and we expect that to continue.”
Reserve Bank Assistant Governor and Head of Economics John McDermott pointed out the recent upward revision in GDP figures – when growth was revised up close to 2% over the last two years – was a sign the economy had a lot more activity than what was once thought.
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The Reserve Bank’s forecast for economic growth has been branded “excessively optimistic” by a top economist but the central bank maintains its Gross Domestic Product (GDP) projections are “perfectly balanced.”
Westpac chief economist Dominick Stephens says economic growth will fall short of the Reserve Bank’s expectations which will have “implications for their views on monetary policy.”
Which economy are these fellows focusing on?
A Paradox of Dysfunctional Contemporary Finance: The higher home prices inflated (and the greater systemic risk) the cheaper it became to “insure” mortgage Credit risk. More recently, the higher stock prices have inflated (and the greater systemic risk), the cheaper it has been to “insure” equities market risk. These highly distorted “insurance” markets became instrumental in attracting the marginal source of finance fueling late-stage “Terminal Excess” throughout the risk markets.
Variations of these “short vol” strategies have essentially been writing flood insurance during a prolonged drought. Key to it all, global central bankers for the past nine years have been intently controlling the weather.
Importantly, activist reflationary policymaking ensures that speculative leveraging becomes a prevailing source of liquidity throughout the markets and in the overall economy. Read more
I don’t place a huge degree of faith in either the reserve bank guv’ner nor economists per se, however I’m with Dominick on this one. The tweaks that labour have introduced will have major consequences for the economy. Something that spencer and Co. seem to have totally ignored.
... a landed gentry , a minority who're so rich they own the majority of the nation's assets ...
A vast majority who are comparatively poor , struggling from heavily taxed pay cheque to heavily taxed check out queue ...
... and a completely destroyed freshwater system... polluted by dirty dairy farming ...
Ah ... how we miss the Gnats !
and a completely destroyed freshwater system what a load of bollocks GBH. Yes, there are some areas of some waterways that have issues - sediment is the problem that affects most of our waterways - if Southland Fish and Game says so, then it must be true!
Why so silent on the urban pollution of our biggest city's beaches? More people swim at beaches than rivers.
A couple of unmentionables in the back pocket - record migration numbers and The Economist 2017, whilst talking of NZ being the most expensive global housing market, also notes “a growing horde of rich foreigners" coming to New Zealand.
The above rather conveniently painted over one or two annoying cracks in the “rock star” façade.
Yes, I think the RB is in danger in a general sense of extrapolating forward the somewhat overheated and overstimulated economy – and voila, things not too bad in forecast land.
It may well play out that way – however, the punch bowl looks as if it is now finally and gently being taken away, or if the last week or so is any indication, simply been thrown all over the floor.
Would be Interesting to hear from any Gubmint budgeteers, no? Because the May Budget will have to square the circle: reconcile all the spending promises, round up the revenue, and present it all to Parliament. Gubmint types will be into the thick of this about now. There'll be a few long weekends involved to corral some of the more - shall we kindly say - Amorphous - promises: 100K hooses, 1 billion trees, thousands of new tertiary entrants (which latter number will only settle mid-March).
T'will be anything but a steady-as-she-goes affair, methinks.
debt debt and more debt, how can the world afford higher interest rates now, and what to do if CPI inflation ever returns, there will be a lot of broke people
Ten signs we're heading for 'economic armageddon'
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=119…
International investors are being urged to steer clear of banks in Australia, Canada and Sweden by a leading investment consultancy, which has sounded the warning about the risk they may pose to the entire financial system if interest rates rise and the Chinese economy slows.
The combined weight of these banks on world equity markets is four times larger than their share of the global economy, London-based Absolute Strategy Research said in a note to clients, AFR.com reported.
Investors were “underestimating just how damaging a group of countries that account for just 3% of global GDP can be”, ASR said in a12-page report sent last week to its institutional clients that include several of Australia›s largest funds.
“High house prices, a build-up of household debt post-global financial crisis (2007-2008), and–for Canada, Sweden and Australia–banking sectors that are more than 20% of local market cap and 13% of ‹global banks›, make these markets likely sources of financial market instability in the year ahead,” ASR said.
Someone out there is cautious about Aussie bank stability (which means us).
https://financialtribune.com/articles/world-economy/81502/australia-can…
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