New Zealand: Broad-based slowdown – ANZ

ANZ analysts explain that in what’s been a broad-based slowdown for the New Zealand economy, the pace of headline GDP growth has almost halved from around 4% y/y in 2016 to 2.1% in June 2019.

“The leading indicators are all suggesting there’s more slowing to come in the near term. We expect annual GDP growth will feature a 1-handle in the first half of 2020, but are hopeful that accommodative monetary conditions, still-elevated (but easing) net migration inflows, and a buoyant household sector will put a floor under things. However, sub-par growth is inconsistent with intensifying inflation pressures over the medium term, which – alongside inflation expectations threatening to slip – will see the RBNZ cut the OCR further. We’re expecting a 25bp cut in November, and two follow-up cuts in February and May next year to take the OCR to just 0.25%. But the RBNZ won’t be the only central bank cutting interest rates over the year ahead. Growth among our trading partners has also been slipping. And with domestic and global risks skewed to the downside at a time when monetary policy running into conventional limits, there are increasing calls for the Government to up the fiscal-stimulus ante.”