NZ Growth to Remain Strong

Growth in New Zealand is tipped to remain strong but rate hikes won’t be on the cards until 2018, says HSBC chief economist Paul Bloxham.

“Our view is that the economy is now firing on all cylinders. You have a strong construction story, strong tourism and the dairy story is no longer a drag and is actually looking like it’s a contributor,” he said Tuesday when presenting a report on New Zealand in 2017, Scoop reported.

HSBC is expecting the economy to expand 3% in calendar 2017, following a growth of 3.2% in 2016. Bloxham said New Zealand’s growth trend was 2.5%.

As rebuilding activity starts to wane in Canterbury, building work is expected to continue to grow quickly in other parts of the country in response to strong population growth, Bloxham said. He underscored 2017 will be another good year for tourism. 

Rising dairy prices has removed a key downside risk, although Bloxham noted export volumes may still be a drag on growth given cutbacks in the sector.

He noted the main policy challenge has been low inflation and the key question is whether the current strong growth will deliver a pick-up in inflation. “We are of the view it will,” he said. 

Higher fuel prices are expected to have pushed New Zealand’s annual inflation back above 1% for the first time in more than two years in the December quarter. Among other things, stretched capacity in the construction sector and slowing inward migration, as the situation improves in Australia, should see a lift in wage pressure.