Economic growth expected to have slowed in March quarter; RBNZ's forecasts slightly weaker than most bank economists'; Growth expected to be largely driven by construction

Economic growth expected to have slowed in March quarter; RBNZ's forecasts slightly weaker than most bank economists'; Growth expected to be largely driven by construction

Gross domestic product (GDP) figures out on Thursday are expected to show slowing economic growth in the three months to March 2019.

While both the Reserve Bank (RBNZ) and ANZ economists expect quarter-on-quarter GDP growth to slow from 0.6% to 0.4%, ASB and Kiwibank economists are forecasting 0.5% growth and Westpac economists a rosier 0.6%.

With the RBNZ in May revising its near-term GDP forecasts down, and cutting the Official Cash Rate (OCR) to a record low 1.50%, it showed it was already bracing itself for softness in the economy.

So unless Thursday’s data is surprisingly weak, the RBNZ isn’t expected to be prompted to change its course of action.

ANZ economists say that even if Thursday’s data turns out to be a bit stronger than expected, economic momentum is still waning and inflation isn’t picking up as much as it needs to.

They see the RBNZ cutting the OCR in November and then again in February, while ASB and Kiwibank economists are pencilling in a cut for August.

Westpac economists – the most upbeat of the bunch – believe the economy is more robust than the RBNZ thinks; “not by enough to take OCR cuts off the table, but enough leave the RBNZ in watch and wait mode for now”.

2% low-point expected to be hit in June

The consensus among economists is that the economic slowdown is expected to find its floor in the June 2019 quarter.

Indeed, on a year-on-year basis, the RBNZ in May saw growth slowing from 2.3% in the December 2018 quarter, to 2.2% in the March quarter and 2.0% in the June quarter, before picking up again to 2.6% in the September quarter.

Figures for the March quarter are expected to show much of the growth coming from the construction sector. In fact, construction accounts for about half of the growth Westpac economists are forecasting in the quarter.

They see a drop in agricultural output, due to dry conditions dragging down milk production, showing in the figures. However, they see forestry and mining activity rebounding.

Manufacturing and retail activity, as well as financial and insurance services are expected to make decent contributions to growth.

But other service-related sectors, like rental and hiring services are expected to be a dampener.

Kiwibank economists point out softening in services is a worrying development, given services have underpinned growth in recent years.

Bright spots amid the uncertainty

They say the economic risks they’ve been wary of have been coming into fruition.  

“Kiwi companies remain in the doldrums, and overseas, the global outlook has deteriorated. We now see growth peaking around 3.4%yoy in 2021.

“But to get there, help is needed. Some help will come from the RBNZ. And fiscal policy will help as well, and we are fortunate to have an elevated terms-of-trade.”

ANZ economists say: “The bigger picture is that economic momentum has been slowing for a while now, and we suspect this process has continued into 2019.

“However, a healthy domestic demand backdrop, supported by still-elevated (but likely easing) net migration inflows, modest growth in household incomes, low interest rates, and a touch of fiscal stimulus should prevent growth from rolling over.”

And Westpac economists conclude: “Our view remains that GDP growth will gradually pick up over 2019 and peak in 2020, supported by higher government spending, a strong pipeline of construction work, and a lift in labour incomes.

“Where we are more upbeat than most is our view on housing. We expect the recent sharp fall in mortgage rates and the ruling-out of a capital gains tax to provide fresh stimulus to the housing market, which in turn will boost consumer spending over the coming year.”

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Slowing economic growth expected to bottom out 2 quarters after the Left is out of government

GDP growth is expected to hit its floor in the June 2019 quarter. 

Rather optimistic, don't you think? But then again, when are they not.

Agree. I think there is far worse to come later this year, early next.
But I'm not too pessimistic because I think the government will respond with some heavy fiscal stimulus next year. NZ, luckily, is in a reasonable position to do that.

Sorry Jenée, I was being sarcastic/realistic. Glad to hear it's upwards again from next quarter (although I doubt it)

It really won't. June 2018 figure came in at 0.9%, which will prop up the annual figure for this quarter, the annual figure will drop sharply in the next quarter.

You're trying too hard.

GDP growth has been higher since Labour came to power than it was from 2012-2014.
I'm not a Labour apologist, they are screwing some things up, but you've got an ultra biased view.

Labour did not come into power in 2014 but in 2017, since then GDP has tracked down

One the hand, the "envious" economic growth delivered by the National party came from more of us working longer hours. In terms of GDP per hour worked, we haven't progressed at all since 2012.
On the other, we have Labour that came into power promising to change this but has delivered nothing significant on its productivity improvement promises. Meanwhile, migration still runs wild while job creation has come to a halt.

I believe we've run out of options at the polling booth!

I tend to agree. If a snap election was called next week I think I'd vote for Bacon and Eggs for breakfast after a sleep in, and going nowhere near the polling booth.. None of the major parties are worth a vote at the moment.

Agree. I wouldn't vote.

I'd have no hesitation voting ACT if the election was held today.

Don't kid yourself Advisor. The so called economic growth during Nationals era came from overseas investment mostly from China, or didn't you notice our property markets going through the roof before 2017? And yes more of us are having to work harder to keep up with over inflated house prices and rent. Since late 2017 China has now turned off that "free money tap", shame that National didn't remain in power to explain why their economic growth "false economy" had suddenly come to an end.

Labour are in the process of rebuilding our "real economies" but that isn't going to happen over night, it may take years to recover the damage that National's neglect did to out industries.

Ha ha, really? Coalition have so far demonstrated that they couldn't deliver so much as a pizza. Pages and pages of screwups and 'misses' in just 18months. Like kiwibuild, billion trees, falling growth, rising unemployment, rising beneficiary numbers, falling dollar, dead business confidence, ballooning strike action, tax working group, rising immigration, massive useless spend-ups on tertiary fees, provincial pork fund, hundreds of working groups, embassy spend-up, huge growth in civil service... Their clientalism aimed at punishing productive business and primary production sectors to satisfy their union masters and beneficiary/public service voters only harms growth and industry leaving all of NZ poorer. It's the same pattern as always - every Labour govt of last 60 years has left NZ in recession.

Bill English himself pointed - in the face of negative economic signs under his tenure - to immigration and rising house prices as good economic factors. Problem was...not a lot else.

@Foyle: Actually Labour have delivered on a number of their election promises: They've eased the property market to make it more affordable for FTB's, bringing in the Foreign Buyers Ban and AML enforcement. Immigration hasn't been as rampant under Labour as it was under National.

Also don't forget that National wants to increase immigration by bring in a scheme for a new Primary Sector Visa to further bring in more migrants. And remember it was National that pushed up the cost of house prices and the cost living over nine years, that also bloated the NZD that harms growth and industry leaving all of NZ poorer. I think your pointing the your finger in the wrong direction.

Coalition eased the property market? Are you kidding? National median up 3.2% in last year. Immigration is just as high now as it ever was so if it was 'rampant' for National then it's rampant for the Coalition. Obviously only a problem in your eyes if it occurs under National. P.S. House prices doubled under Clark Labour govt, only went up 50% under National - who were wresting with the massive reduction in house build rate caused by Chch rebuild, GFC and house building regulation changes (much slower to build houses than it used to be)

Property prices have fallen significantly in the area effected by overseas investors such as Auckland. Prices have only increased in affordable areas, so sorry you lose that argument (Plus prices in Auckland massively increased under National to the point of becoming unaffordable to wage earners, in the city areas). Don't make me laugh about a lack of housing, there's certainly a lot available now, they just need to drop price wise to become affordable. So the bottom line is that National cause a lot of damage to NZ through blatant neglect of the NZ people and everyone knows that.

Try reading what I wrote again. Or maybe two more times. Eventually you might understand.

@ Yvil: Umm explain to me "how" National would increase our GDP. Continue asset stripping, selling off more housing and land to overseas investors? Whoops too late, that ship has well and truly sailed.
Any other GDP plans?

Seems a tad optimistic. The ripple through effect of the fall in Auckland Property prices on everything from renovations to staging and real estate fees is going to take a while to feed through. Once that kicks in it may take several quarters to bottom out.


And that there "floor in the June 2019 quarter"might just have stood out in the weather a month or five too long (waiting for tradies), and have the structural characteristics of our favourite breakfast cereal wafer.....


Well this was already predicted since we're having to focus on redeveloping 'real economies': Agricultural, Manufacturing, Technology, Tourism, Arts, Health, Education, Business etc. And not be so reliant on non preforming assets that creates a "false economy" allowing lots of so called overseas investment in non preforming assets "Property and land banking".

Now do you see the damage that was done by nine years of the National party, who did absolutely nothing but rely on a false economy.

I think you'll find all de-industrialized economies have a high dependence on the finance sector, not just NZ. I don't see anyone on the political spectrum who appears to challenge the status quo in this regard.

Yes I agree with you. But in regards to "high dependency on finance sector" at least Labour have taken steps to stop Foreign Buyers from asset stripping our land and property (They're also tackled money laundering to reduce it). Which in turn higher house prices increased our need for more mortgage debit, lower house prices brings down the cost of living which allows more more business development and job creation. But yes I know it could be worse, that's why I'm glad we've moved away from a false economy.
Here's an interesting article for you: Canada Would Be In A Recession Without Money Laundering.

Endless Polyannas here and Fed and IMF. Notice how it’s always going to be better next year? When does forecaster EVER state things will not go up or get better! Why should growth decline (causes of which are not going away) suddenly improve? We are not told. Housing drove velocity of money and GDP . It’s been in reverse 3 years and more to come