New Zealand GDP to Slow This Year

New Zealand government bonds ended Monday’s session on a weaker note as investors’ risk sentiments improved ahead of the GlobalDairyTrade price auction to be held on January 16 for further direction in the debt market.

At the time of closing, the yield on the benchmark 10-year treasury note, which moves inversely to its price, jumped 2 basis points to 2.89%, the yield on 20-year climbed 2-1/2 basis points to 3.37% and the yield on short-term 2-year also ended 2-1/2 basis points higher at 2%, FXStreet reported.

Earlier estimates suggested that the economy had been growing by around 2.5-3% per annum in recent years. That was surprisingly modest growth given large increases in the population, implying that GDP per capita had essentially stagnated. The updated GDP estimates highlight that the economic activity in recent years was actually substantially stronger than initially thought. Growth topped out at 4% at end of 2016.

Meanwhile, analysts at Westpac explained that even with the economy expanding at a brisk pace in recent years, they have not seen signs that the economy is overheating, with both domestic price inflation and wage inflation remaining well contained. The momentum in economic activity has started to fade, with GDP growth set to slow in 2018.

To ensure inflation remains close to 2% against this backdrop, interest rates will need to remain low for some time.  

Looking to the next few years, the New Zealand economy is in for a big shake-up, with earlier drivers of growth dissipating and significant changes in economic policy on the cards. Economists expect that these changes will see GDP growth slowing to around 2.6% by the end of 2018 before it reaccelerates through 2019 and 2020.