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Economic growth for the remainder of the year and early 2019 is expected to be softer than predicted, coming in under 3% as opposed to just over 3%.
ASB chief economist Nick Tuffley said the country’s growth outlook remained "reasonable" but risks of weak growth had intensified a little further.
"Questions remain over how much cooling will be caused by weak business confidence and trade tensions," he said.
He expected growth in the last part of 2018 and into early 2019 would be a touch softer than it could have been — slightly below 3% instead of slightly above 3%.
"So far, the economy has held up relatively well in the face of two high-profile uncertainties: stubbornly weak business confidence and escalating trade tensions," Mr Tuffley said.
Repeated business surveys during the past four months have reflected falling confidence in businesses future outlooks, largely in the face of uncertainty over the effects of Government policies.
Westpac chief economist Dominick Stephens predicts the GDP’s annual average for 2018 will end at 2.8%, then rise through 2019 to 3.2% and ease back to 3.1% in 2020.
"Auckland and Canterbury are experiencing lacklustre economies and flat or falling house prices.
"[However] there is a completely different feel in some other parts of the country, where local economies are at their most buoyant in years," he said.
He predicts the overall economy will continue to improve before a renewed slowdown sets in during the early 2020s.
"New Zealand’s on track for a stronger, albeit temporary, patch of growth over the next couple of years, supported by house prices, building activity and Government spending," he said.
Westpac had recently raised its forecast of house price growth, which in turn would help support consumer spending.
However, there were several headwinds for the housing market, he said.
Investors in housing are "facing a battery" of policy changes, including an extension of the "brightline" test — the time a home must be owned, foreign buyer restrictions, the removal of negative gearing and possibly a broader capital gains tax.
"We’re expecting house price growth to remain modest over the coming years, turning to declines by 2020 as interest rates gradually rise," Mr Stephens said.
Inflation had come off an extended period of weakness in recent years, but in the September quarter there was a larger than expected rise in consumer prices, boosting annual inflation to 1.9%. The Reserve Bank target remains midway between 1% and 3%.
Mr Stephens said the inflation backdrop was "now looking firmer" than expected, with headline inflation set to rise to 2.2% in coming quarters.
He highlighted much of that increase could be caused by rising fuel prices, which would be temporary.
Fuel price volatility aside, Mr Stephens predicted inflation would be a "little over" 2% by 2020.
"We expect inflation will remain well contained within the Reserve Bank’s 1%-3% target band over the next few years."
Another major factor supporting near-term GDP growth was the planned acceleration of Government spending, with sizeable funding boosts for the health and education sectors in coming years.
"Much of that is likely to go towards hiring and pay increases," Mr Stephens said.
Mr Tuffley said it was encouraging that to date there had been few tangible signs the business confidence plunge had filtered through to economic growth. Capital goods imports were holding up, as was credit growth to businesses, he said.
"There are some early signs that business confidence is stabilising, albeit at a level usually consistent with weak economic growth," Mr Tuffley said.
Escalating trade tensions between the US and China have also been noted in recent surveys, with China being New Zealand’s largest trading partner, but also having historical and strong economic ties with the US.
Mr Tuffley said while the trade tensions continue to "simmer" between the US and China, and had not really affected New Zealand, a wary eye had to kept for any slowing of Chinese consumer spending growth.
Mr Tuffley said those trade tensions, capacity constraints, and cost pressures with contracting profit margins would be part of the story.
"But it is also clear from specific surveying that uncertainty about Government policy is an important influence behind the weak level of sentiment," he said.
Mr Tuffley expected some business capital expenditure would be deferred in the short term, which would "take the edge" off New Zealand’s near-term growth performance.
"As the Government firms up key policies over time, the added uncertainty businesses seem to be feeling at present should subside," he said.
Mr Tuffley said inflation pressures were benign enough that the Reserve Bank’s interest-driving official cash rate could remain on hold well into 2020, which had been predicted by the central bank and had consensus among economists.