New Zealand economy calm amidst global turbulence – Quarterly Predictions March 2015

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Source: New Zealand Institute of Economic Research – Press Release/Statement:

Headline: New Zealand economy calm amidst global turbulence – Quarterly Predictions March 2015

24 February 2015

The New Zealand economy is in relative calm, against a backdrop of increasing global uncertainty. Growth will be respectable at around 3% in 2015. But the headline numbers will hide big shifts in the composition of growth, global influences and local policy reactions.

An independent take on the New Zealand economic outlook is available exclusively to NZIER’s members in the latest Quarterly Predictions.

A year of contrasts

2015 will be a year of contrasts. The Canterbury rebuild will begin to fade, but recent increases in net migration will finally begin to drive growth. The RBNZ faces no inflation, but will be increasingly trying to cool the housing market. Cheap global money will work against these efforts.

Domestic demand will be strong, but exports will suffer. Slowing growth in China and Australia will drag on exports. Dry conditions will dent rural production, heaping further pain on farmers on top of sharply lower dairy prices.

No inflation…

The global economy is bracing for very weak inflation, or even deflation in some parts. New Zealand will import these low prices, which account for half of the RBNZ’s inflation target. The other half, domestically generated consumer price inflation, is also soft. So there is no inflation in the economy for the RBNZ to control, except in the Auckland housing market.

…except in housing

The RBNZ is in a difficult policy position. Moderate growth, subdued inflation and global risks suggest monetary policy should be supporting growth. But Auckland house prices, which rose nearly 16% over the past year, suggest the RBNZ should tighten. On balance, the RBNZ cannot justify any OCR changes in 2015, but they should and will unleash macro-prudential tools to dampen a superheated Auckland housing market.

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Selwyn Manning, BCS (Hons.) MCS (Hons.) is an investigative political journalist with 23 years media experience. He specializes in reportage and analysis of socioeconomics, politics, foreign affairs, and security/intelligence issues.
Selwyn has extensive experience as a commentator and has provided live political analysis to a wide range of television and radio organizations broadcasting in New Zealand, Australia and globally including the BBC (Five Live, London) and BBC (World Service). He is currently a correspondent to Australia’s FiveAA radio, and is a regular live-on-air panelist on Radio New Zealand’s The Panel with broadcaster Jim Mora.

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