|ASB Finishes the Year with Optimism
The ASB has ended the year on an optimistic
note, with the bank expecting GDP growth in New Zealand to improve over coming
months despite domestic business pessimism and growing global uncertainty.
According to their latest Quarterly Economic Forecast, GDP growth is likely to
reach almost 3 percent at the end of 2018 as the New Zealand economy heads into
the summer break feeling confident and ready to tackle the challenges of 2019.
According to ASB chief economist Nick
Tuffley, "It's been a year battered by storms but the signs are there that
the economy is slipping into some summertime stability... Despite two
high-profile uncertainties – stubbornly-weak business confidence and escalating
trade tensions between the US and China – we expect that growth in the last
part of 2018 and early 2019 will be only a touch softer than what it could have
Business confidence dropped to a nine-year
low in October, with businesses across the country noting government policy
challenges, higher operating costs, softer demand, and weaker profits.
According to the latest quarterly business survey by the Institute of Economic
Research, 28 percent of firms expect economic conditions to worsen over the
next six months, compared with 21 percent in June. There are already some signs
that things are improving, however, with the ANZ Business Confidence Index
lifting slightly to -37.1 in October 2018 from a decade low of -38.3 in
According to the ASB Forecast, business
confidence is likely to keep improving in 2019: "While surveying shows us
that uncertainty about Government policy is still impacting business confidence
and keeping it at low levels, we are encouraged that, to date, there are few
tangible signs that the plunge in business confidence has filtered through to
economic growth... Capital goods imports are holding up, as is credit growth to
business. And as the Government firms up key policies, over time the
uncertainty business is feeling should reduce."
Other than weak domestic business
confidence, ASB also mentioned rising trade tensions between the United States
and China. While trade between these two countries is minimal on a global
level, an escalating trade war could have a profound effect on the health of
the Chinese economy and the New Zealand export and property sectors. "We
need to keep wary eyes out for any slowing of Chinese consumer spending growth
due to increasing trade restrictions such as tariffs placed on Chinese exports
to the US," said Tuffley, with the ASB using less optimistic language for
ASB economists are expecting interest rates
to remain on hold at the record low of 1.75 percent until August 2020, which is
six months longer than their previous quarterly prediction. While others are
predicting the Reserve Bank to raise rates much sooner, the ASB are expecting a
late and mild tightening cycle that peaks at just 2.75 percent in 2021 or 2022.
According to Tuffley, "This is because the RBNZ will be mindful of not
getting policy settings too far out of sync with other central banks." The
Quarterly Economic Forecast also mentioned rising living costs, saying the
"key test for the economy over the summer and autumn will be the ability
of firms to pass on increased costs onto consumers".
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