Westpac economists pare back their economic growth forecasts and now see annual GDP growth of just 2.4% through the first half of this year, however, they reckon house price growth could be even stronger than they previously forecast

Westpac economists pare back their economic growth forecasts and now see annual GDP growth of just 2.4% through the first half of this year, however, they reckon house price growth could be even stronger than they previously forecast

Westpac economists have taken the pruning shears to their economic growth forecasts and now see GDP growth of just 0.4% (down from previous pick of 0.6%) for the 2019 June quarter.

This would give annual GDP growth of just 2.4%, which the economists, in their Weekly Commentary, note would be "not much faster than the rate of population growth over the past year".

The Westpac economists have been reviewing their forecasts following release last week of the NZ Institute of Economic Research's latest Quarterly Survey of Business Opinion (QSBO), which showed that business confidence has plunged to its lowest level in 10 years, and indications are that annual economic growth could slow to below 2% in the second half of this year.

The Westpac economists say latest economic developments have "reinforced our expectation that the [Reserve Bank] will cut the cash rate to 1.25% at the August policy meeting".

With mortgage rates having already reduced this year and with the RBNZ moving into an easing mode, the Westpac economists have previously forecast that house price growth may rise to 7% next year

And with the latest developments, the economists are even more convinced about this particular forecast.

"We were already forecasting a lift in nationwide house price inflation from around 2% now to 7% next year, along with a related rise in household spending," they say.

"Another [RBNZ] rate cut in August could push mortgage rates lower still, resulting in even larger increases on both of those fronts."

The economists say while they see "some chance" of a follow up rate cut from the RBNZ after the August policy meeting, "we think it’s more likely that the RBNZ will hold fire".

"That’s because a reacceleration in growth is on the cards through the back half of 2019 and into 2020, and will likely leave them feeling a little more comfortable about the outlook for inflation."

Discussing the NZIER survey released last week, the economists said the results indicated that the slowdown in business activity "has been even more pronounced than we had expected".

"This survey is one of the most reliable gauges of New Zealand economic conditions and doesn’t show the same sort of political bias that other surveys do."

The "downbeat reading" in the survey reinforced the message from other recent surveys of business activity. It also comes atop of softness in the housing market and sluggish household spending in recent months.

"We’ve also been hearing concerns about the economic backdrop in our own talks with businesses in recent weeks. However, those talks have also highlighted some big differences in economic conditions across the country. There’s definitely been softness in Auckland and Canterbury. In contrast, businesses in many other areas are feeling quite upbeat, especially in those areas with an agricultural backbone. Wellington is also looking in fine fettle, supported by growth in the Government sector."

The economists noted that in addition to the softening in domestic conditions, "we are encountering headwinds on the external front".

"Notably, prices for our dairy exports have fallen in the past four auctions, leaving overall prices back at levels we last saw in January. We were always expecting auction prices to fall over the course of this year. However, this has come through faster than we anticipated. In response, we’ve lowered our farmgate milk price forecast for the 2019/2020 season to $6.90/kg (down from our earlier forecast of $7.20). On top of that, the NZ dollar has pushed higher in recent weeks, rising to around 67 cents against the USD."

However, in terms of the recovery they see starting in the second half of the year, the Westpac economists said several major factors are expected to support growth over the coming year.

"First are the large increases in fiscal spending that are now being rolled out. And with spending plans ramped up again in May’s Budget, the related boost to demand will now be even stronger than we had previously anticipated.

"On top of that, we’re continuing to see positive signs for construction activity over the coming year. Data over the past week showed that residential building consents rose 13% in May to a 45-year high. There is also a large pipeline of commercial and infrastructure work planned.

"Finally, with borrowing rates already at very low levels, conditions are ripe for a rise in asset prices. Globally, we’ve already seen low interest rates providing a powerful shot in the arm to equity markets, even as economic growth in many regions has cooled. Here in New Zealand, we expect that the impact of low borrowing rates will be seen most clearly in the housing market, especially given the lift in purchasers’ appetites following the cancellation of the proposed capital gains tax."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.



So essentially we need migration if we want the GDP numbers to look positive.

No...essentially we need ‘certainty’ and not the fear of what the government could ‘on the fly’ threaten to do next, as they continue to make it up as they go along, playing with business/people’s lives.

... it is a pity that we don't have a 4 year election cycle , ' cos the penny wont drop with the electorate by September 2020 , what a barking mad government this is ... so they'll probably get 6 years in power , instead of just 4 ... another 12 to 18 months should awaken people to the antics of our governance on the fly ...

If it were 4 year terms, National would have only gotten 8 years.

... that's the key ... they only wanted 8 years ...then they billed us for 1 more ...


I much preferred it when your posts were humorous.There are already too many whining right-wingers on this forum,we don't need another one.

Governments make mistakes-lots of them-and this lot are no exception,but but let me remind you that our net debt to GDP is now under 20%,three years ahead of schedule,so they can't be accused of profligacy. Indeed,I think they should borrow considerably more to address the major infrastructure issues which national were happy to shove under the carpet so that they could boast of their good economic management.

In 2015 GDP Growth peaked at 4%. Just a coincidence that there's a massive spike in the net migration numbers leading up to that peak? Look at the Quarterly GDP Numbers, and compare that to the shape of the Long Term Migration graph curve. Bit of a coinkydink that as soon as Long Term Net Migration goes up so does the GDP numbers? Now that Long Term Migration growth is trending down, golly gosh so are the GDP numbers.


Roger Kerr 8 July writes "Importers and exporters with currency risks should not read too much into the low business confidence reading last week from the quarterly NZIER business confidence survey.

Whilst on the surface the survey result suggests lower economic growth ahead, in reality this survey has been a poor predictor of NZ’s actual GDP growth as it is not representative of the total economy. For unexplained reasons NZIER fail to survey the dominating agriculture and primary industry sectors."
Westpac 8 July write "Discussing the NZIER survey released last week, the economists said the results indicated that the slowdown in business activity "has been even more pronounced than we had expected".

"This survey is one of the most reliable gauges of New Zealand economic conditions and doesn’t show the same sort of political bias that other surveys do."
Westpac however do see housing wealth rising by around 90 Billion in the coming year. No bias . ( Interest' s charts show that the national median house price is near record high highs , somewhat at odds with a housing slowdown )

How bad really, is the Westpac loan book? Here’s their submission to the RBNZ over capital adequacy changes

‘If the Australian banks are indeed faced with a significant fall in the returns on equity from their New Zealand banking subsidiaries, they will face a number of choices including whether to reduce the size of the business, demerge, or sell."

Here’s what their CEO was wishing for 14 months ago. Their economics department sound like a load of lunatics.


Totally agree, Westpac economists truly sound demented.

They seem to start with what they wish would happen in the economy and then use convoluted calculations/extrapolations to support their wishful thinking.

If the housing market goes south they'll probably be in more trouble than ANZ.

Their economists are akin to a toddler trying to put a square peg in a round hole. Customers should really be questioning their association with Westpac.

... maybe Westpac economists sound demented 'cos their bank doesn't give them a big enough allowance to properly store and shift their fine wine collections ?

Exactly - they tend to work until they retire at state pensionable age, whereas savvy proprietary bank traders clean up and retire around forty five because the banks aren't paying them enough for the returns they generate for shareholders.

Westpac hiring someone who BNZ had, then didnt have. Was there an issue with Malaysia?



But, back when the 4 way coalition was leading the charge, GDP was 'exactly' the same yet we had a 'rock star economy'...

"We were already forecasting a lift in nationwide house price inflation from around 2% now to 7% next year, along with a related rise in household spending,"

What you forecast is always what you want. A darkening global outlook says its increasingly unlikely you will get it. RBNZ is about to demand an increase in your capital because it believes you're unprepared for the fallout from a Global debt hangover of epic proportions.

The anti-growth people will be happy. Where is the resident conspiracy theorist celebrating?

I am right here chugging down a nice hot green tea

I was thinking of a different one. But if you think growth is bad then I assume you aren't demanding a pay rise this year.


I have no-one bar myself to demand one from.
Growth inevitably means more people, we can't really do that any more

Anti-growth? You make it sound like we don't like growth. Some growth is good. Like increased productivity and entrepreneurship leading to value added to our primary industries. Selling in new markets. Coming up with cool ways to do new things so on and so on. Some growth is bad. Like cancer, and like a debt ponzi scheme that needs more schmucks to borrow more so the banks sell more of their product, which is debt.

In conclusion. Cheers!

Good point Jedi

I think a lot of people forget that debt stacking on houses (credit creation for financial asset purchases), crowds out credit creation for productive enterprise. The result of the wrong type of money creation leads to the cost pressure of housing (and reduced security) stymying entrepreneurship and real ‘productive’ GDP growth.

I'd settle for 5% house price inflation. Not too greedy.

ZS, the current situation must be giving you an uneasy feeling then. No wonder it's all about the yields. The drivers behind those increased rents (rates-Insurance-maintenance-compliance-zero letting fee-ring fencing) are hardly conducive to house price growth. Increased rents are a tax on those who can least afford it. Something has to give and it appears to be showing up in stagnation in the services sector. As soon as unemployment heads north, the whole lot heads south at a self fulfilling rate of knots.

5% would be great!!!!!

surprise ...not. What does one expect when house flipping is seen as an investment.

When it comes to our GDP it's really a case of looking at the glass being empty or half full. So property markets in expensive areas are going to declines such as Auckland and Queenstown since they were left over inflated from foreign buyers. But on the bright side the rest of NZ seems to be picking up in regards to sales.
Also there's now a lot more market opportunity for NZ to venture into and fill the void that has been opened up by Mr Trump shooting America in the foot and crippling their economy with self imposed tariffs.
We all know that the US agricultural is suffering because of this including their wine industry, so take the opportunity to move in more on those markets and help increase our exports that in turn will boost our GDP!
BBC article: How the US-China trade war squeezes California's wine country

Can we get some different economic views here, we cannot keep just growing and growing, and the lunacy of conventional economics is looking tired and out of touch.
How about some inventive thinking instead of this constant bloody panic if we are not experiencing growth.
Banks are about the only organizations who really demand growth, so they can bleed you without actually killing you.

"Banks are about the only organizations who really demand growth.."

Interest demands growth
Money (= debt) demands growth
Everyone who uses a bank account demands growth
Diminishing returns demands growth in efficiencies
Rising populations demand growth
Past debts demand growth
Supply chains rely on debt (the financial system in place) and therefore ongoing growth
And then factor in the use of non-renewable resources. ie The one off gifts of the easy Oil and abundant mines .. been and gone

but most importantly, all our wealth claims ASSUME growth into perpetuity.
Growth underpins the store of value in all MONEY.

To move to a sustainable system now, is to acknowledge overshoot (particularly population) and to obliterate supply chains, incomes and current wealth claims.

Agree except for the population overshoot thing. There's studies showing we can feed and house near 30 billion on the planet in stasis, and my generation (millenials) is shaping up to be the first in a long time to have a lower life expectancy than their parents. The great depression was probably the last time life expectancy slid backwards (if we exclude wars and look for economic features affecting life expectancy).

We're doing okay. As long as you focus on what you have to do & do it well, you'll do alright. Don't believe everything you read or hear. If you want to get closer to the truth, divide everything by two is always a good rule of thumb. Sure, we're up to our necks in debt, but so is everybody else. Even those with no debts will be effected if it heads south. People are trying hard to keep it afloat whilst others are trying hard to take it down. That's life. Let's hope the goodies win.

Yes I'm certainly more confident about the future and that we're heading in the right direction with building real economies. At least we don't have a Goober in power, I feel sorry for the Americans it must be so embarrassing for them.
BBC; President Trump makes 'airports in 1775' error

"Sure, we're up to our necks in debt, but so is everybody else. Even those with no debts will be effected if it heads south"

Very true.
The trouble being all this debt makes supply chains (think milk produced, delivered to your plate ..) appear viable
Remove the debt (via collapse) and the supply chain is broken
Because the supply chain must be viable in energy terms, not monetary. And we are winging it via using debt as an energy proxy (a promise of even greater energy abundance in future)

"Lift in purchasers appetites" What?
Sales have only been lower in 6m of the last 16 years, which was in 2008-09.
Furthermore, facts (rather than rhetoric and self-serving flannel) show that the decline in sales accelerated in May compared to May 2018. Add in fact that March, April and May also showed a worse decline than the 12m rate. The picture is quite clear. With a 9m lag the trade war of USA and China plus the OBB and AML law, is crushing sales in the brackets over 1.2m. The declines are accelerating. The usual jam tomorrow tripe from Westac I am afraid is due to their having worst derivative and Co-Co bond exposure in Australia, plus the class actions they are facing as a fallout from the Royal Commission. Again averages are v convenient (given for NZ)
7% up in Auckland?? Dream on

The survey is one of the most reliable gauges of New Zealand economic conditions.
spanish dictionary