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The New Zealand economy will grow strongly over the next couple of years, according to the latest NZIER Consensus Forecasts.
Economic growth will pick up from 2.8% in the March 2014 year to 3.1% the following year.
Economic growth will be broad-based across household spending, investment and exports (Figure 1).
Exports this year were depressed by a drought, but will grow strongly in future years.
Dairy production has already recovered strongly from the summer drought.
The labour market will improve.
There will be more jobs, fewer unemployed and wages will grow, and the pace of improvement is better than previously forecast.
Inflation will pick up towards 2.5% over the next few years. Interest rates will gradually increase from early 2014.
The NZIER Consensus Forecasts are an average of New Zealand economic forecasts compiled from a survey of financial and economic agencies.
These are not NZIER’s forecasts.
The average forecasts do not necessarily represent the views of individual participants.
Forecasts are for March years, e.g. 2014 refers to the year ended March 2014.
Stronger economic growth
The economic recovery will strengthen further. The Canterbury rebuild is a key driver.
There is also a broadening recovery across other investment, exports and household spending.
Economic growth will accelerate from 2.8% in 2014 to 3.1% in 2015 before easing off slightly in 2016 (2.5%) and 2017 (2.1%).
Economic growth is forecast at 1.1% in the September 2013 quarter.
Robust residential construction
Residential construction will continue to grow strongly.
The Canterbury rebuild is gathering pace and there is also a cyclical recovery in other regions, particularly Auckland.
Residential investment growth will still be very strong at 19.3% and 19.2% in 2014 and 2015 respectively.
Activity will continue to grow, but at a more moderate pace in 2016 (+10.7%) and 2017 (+3.6%).
Exports to rebound from drought
The 2013 summer drought will lower exports in 2014.
There is a convergence of views, with a short, sharp dip in exports in 2014.
Exports will rebound strongly from the drought, growing at an average pace of 3.2% per year, in the following three years.
Exports are forecast to grow robustly, even though the exchange rate is expected to stay elevated through the forecast horizon.
Exchange rate to remain elevated
The NZD will gradually ease from current highs, but the level will remain high compared to history.
On a trade weighted basis, the New Zealand dollar is expected to be a little higher than previously thought.
Exporters should plan for a high exchange rate for some time.
A high exchange rate favours imports.
Accelerating inflation
Consumer price inflation will gradually lift from an annual average rate of 1% in September, to 2.4% by 2016.
The acceleration is gradual but will be approaching the top half of the RBNZ’s 1-3% target band by 2016.
Inflation forecasts have been revised slightly lower over the forecast horizon.
This is consistent with expectations of a slightly higher exchange rate, which reduces import prices.
Interest rate increases from 2014
Interest rates will lift from early 2014. The 90 day bank bill rate, which mirrors floating mortgage rates, will rise by 1.7 percentage points by early 2016.
The floating mortgage rate is currently around 6% and could rise to 7.6% by early 2016.
On average, the 90 day bank bill rate is forecast to increase from 2.8% in 2014 to 3.5%, 4.4% and 4.8% in 2015, 2016 and 2017 respectively.
Improving labour market
The labour market will improve over the forecast horizon.
The unemployment rate will reduce from current historically high level, towards the past decade average of 5%.
Wages will grow at a reasonable pace over the next three years (3% on average).
The growth in wages will outpace increases in the cost of living by close to 1% a year.
Fiscal surplus closer
The government operating balance will be in deficit in 2014, but be in surplus in 2015 and continue improving thereafter.
The consensus forecast of a return to surplus in 2015 is consistent with the government’s stated goal in the May 2013 Budget.
You can see the full Report here.
1 Comments
I am sure NZIER will continue to reap the rewards and accompanying accolades for it's efforts.
Just as others do irrespective of the veracity of the effort:
And for some further amusement, here is what prominent economists are saying about the IMF's Economic Review:
“The IMF Economic Review is quickly becoming the premier outlet for context-based macroeconomic research. In doing so, it is providing a great service to policymakers and a source of inspiration to real-world driven researchers.”
- Ricardo J. Caballero, Ford International Professor of Economics, Department of Economics, MIT
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