World Economy

New Zealand Economy Facing Headwinds

New Zealand Economy Facing HeadwindsNew Zealand Economy Facing Headwinds

New Zealand’s economic growth is expected to have slowed further in the first quarter, falling short of central bank expectations and underscoring the case for keeping interest rates on hold for a considerable time, according to a Reuters poll.

Twelve economists polled by Reuters expected gross domestic product to have grown just 0.5% in the three months to the end of March, easing slightly from the previous quarter and below the 0.7% forecast by the Reserve Bank of New Zealand in May.

That would result in annual growth of 2.7%, cooling from 2.9% at the end of 2017.

Economists saw weak spots starting to appear in the economy as skill shortages hold businesses back and immigration slowed in the wake of tightened conditions for skilled migrant visas.

“The economy is clearly facing headwinds...In fact, the underlying pace of growth is already slowing,” said Liz Kendall, senior economist at ANZ Bank, in a research note.

“Construction and net immigration–key drivers of recent growth–are expected to have topped out, and we believe consumption growth will cool in the face of a softer housing market.”

New Zealand’s quarterly growth has averaged 0.9% since 2014. The easing off in expansion would likely reinforce the RBNZ’s view that rates should remain at a record low while it works to boost tepid inflation.

“We expect the RBNZ will continue to champion the strong fundamentals for growth outlook and continue to play its part by holding interest rates at low levels for at least another year to come,” said ASB Bank economists in a research note.

Not helping matters was poor prices for dairy, the country’s largest goods export, though prices are expected to improve and could result in economic growth bouncing back somewhat in the second quarter.

Concerns are also emerging that persistently weak business confidence since the center-left Labor-led government took the helm in October could start to filter through to lower business activity and investment.

“Our key concern is not so much soft growth in Q1 but the prospect for the underlying pace of growth to weaken further if business confidence remains low into the second half of 2018,” the ASB economists said.

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