InvestNow News 3rd Oct – AMP Capital – New Zealand Insights – September 2019

27th Sept 2019 – Bevan Graham – Managing Director and Chief Economist

Our base case scenario for the New Zealand economy has been a slowdown in growth from the giddy heights of 2016 as capacity constraints emerged, business costs rose and population growth slowed. We had previously expected a temporary blip higher in growth in the second half of 2019 on the back of prior easing in fiscal policy, but that has been overwhelmed by global developments alongside continued weakness in business confidence.

Growth remains subdued

Our base case scenario for the New Zealand economy has been a slowdown in growth from the giddy heights of 2016 as capacity constraints emerged, business costs rose and population growth slowed. We had previously expected a temporary blip higher in growth in the second half of 2019 on the back of prior easing in fiscal policy, but that has been overwhelmed by global developments alongside continued weakness in business confidence.

We still think the economy receives a boost from fiscal spending in the period ahead, the key question being the extent to which the negatives of weak confidence and subdued global growth offset the positives.

We take some comfort in a somewhat better domestic growth environment earlier next year as we are expecting the global economy to pick up as we move into 2020. That reflects recent efforts to stimulate growth through easier monetary policy and as trade tensions ease as we get closer to the 2020 US election.

The key risk is a further deterioration in business confidence which continues to suppress business investment, just at the time it is needed to increase capacity in the economy in an environment in which the labour market is tight.

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