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NZ Growth Picks Up

NZ Growth Picks UpNZ Growth Picks Up

Business confidence has risen for the third month in a row, with New Zealand’s largest bank saying it was “pretty clear” the economy has picked up pace.

A week out from a finely balanced review of the official cash rate, Australia & New Zealand Bank chief economist Cameron Bagrie has urged the Reserve Bank not to “waste a bullet” by cutting interest rates before Christmas, Yahoo reported.

The latest ANZ business outlook survey found that a net 14% of businesses expect the economy to improve in the coming year, the third increase in a row from July’s six-year low.

Business figures who took part in the survey were even more confident about the performance of their own companies, with a net 32% optimistic of improvement.

Bagrie, who for months has been more upbeat than his counterparts at the other major banks, said that while some of the boost was likely to reflect a move into summer, the survey showed it was “pretty clear” that economic growth was gathering pace.

“It’s pretty clear based on what I’m picking up on the road as well,” Bagrie said.

In early 2015 the only clear drivers for growth were record net migration and a booming Auckland property market, Bagrie said.

Now, tourism inflows and the performance of the services sector were “phenomenal”, while outside of the dairy sector, some commodity prices were–in New Zealand dollars–above average levels.

After dropping below 2% at the start of 2015, Bagrie believed the New Zealand economy was heading into a period where growth was around 2.5%, which should be sufficient to drive unemployment downwards.

“We’re starting to transition into better growth, so the unemployment rate is no longer going to tick up,” Bagrie said, predicting that unemployment would drop below 6% some time in 2016.

After falling to 5.4% in 2014, unemployment has been rising steadily since, hitting 6% in the September quarter, with some economists warning it could come close to 7% in 2016.

The slowing economy and persistently low inflation has economists split on whether the Reserve Bank will cut the OCR for the fourth time in 2016 at its final review on December 10.

In November, ASB joined Westpac in forecasting that in the second half of 2016, the OCR will be dropped to 2%, an all-time low.

Both banks expect Governor Graeme Wheeler to drop the OCR by 25 points on December 10. BNZ also expected a cut, although the bank has said in recent weeks its forecasts were based on what it expects the bank to do, not because it believes a cut will be effective.

 

Financialtribune.com