‘Downside risks’ to NZIER’s 2.8% average GDP growth outlook

Christina Leung
Christina Leung
Declining population growth has prompted an economic downgrade from the New Zealand Institute of Economic Research.

The influential NZIER forecast now expected annual gross domestic product (GDP) growth to average around 2.8% over the next five years, NZIER principal economist Christina Leung said yesterday.

"While that [2.8%] represents a respectable outcome for the New Zealand economy, there are downside risks to the outlook," Ms Leung said.

ASB and Westpac economists last week said in separate reports GDP was expected to come in under 3% between now and early 2019, citing the unknown effects of China-US trade tensions and domestic business outlook surveys.

In September, Ms Leung’s consensus forecasts  showed a further slight downward revision to the country’s latest growth outlook.

At the time, she said annual GDP was expected to peak at 3.1% for the year to March 2020 before dropping to 2.7% by 2022, and averaging 2.9% until 2020.

Yesterday, she said that along with slowing population growth driving moderation in economic growth, New Zealand business confidence had continued to deteriorate and businesses were also reporting some softening in demand in their own business.

"Weaker profitability is also reducing firms’ appetite to invest," she said.

There were also negative risks offshore from increasing US-China trade tensions, uncertainty over how Brexit would play out and local market adjustment to higher global interest rates.

She expected the Reserve Bank will keep the interest-driving official cash rate at the record low 1.75% until March 2020, Ms Leung said.

"Interest rates are lifting globally, led by the US Federal Reserve," she said.

While the Reserve Bank continued to highlight the potential for the official cash rate to move lower if New Zealand growth did not pick up as much as forecast, she expected the next interest rate move to be up, Ms Leung said.

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