Treasury picking steady growth to year-end

Monday 1st October 2018

Treasury is expecting steady growth through to the end of the year, supported by the government’s Families Package, on-going high net migration and a modest recovery in housing activity.

The Families Package, which took effect from July 1, should help offset some of the impact of higher fuel costs, Treasury says in commentary for its monthly report on recent economic indicators.

While migration-led population growth is slowing, it remains high and continues to make a “significant” contribution to demand, Treasury says. Residential construction investment should also continue into the September quarter, while more consents for multi-unit dwellings may result in a slower but steadier pick-up in activity.

“Averaging March and June quarter growth gives real growth of around 0.8 percent a quarter, and probably represents a reasonable take on the current pace of growth in New Zealand,” Treasury says.

“Should growth continue around current rates over the remainder of 2018, as we expect, it would represent only a modest softening in the economic outlook” compared with that expected for the May Budget.

The New Zealand dollar jumped last month after GDP data showed the economy expanded a stronger-than-expected 1 percent during the June quarter, for an annual increase of 2.8 percent.

Surveys last week also showed a recovery in business confidence – although investment intentions weakened – and steady consumer confidence.

Treasury noted that while real activity had been a little stronger than earlier expected, nominal growth had been weaker.

Nominal GDP growth for the June year was 5.5 percent, compared with the Budget forecast of 6.1 percent.

“As a consequence, the economy is a little smaller than expected, when measured in today’s dollars, which may flow through to lower tax revenue over the year ahead. That said, tax revenue in the year to date has been higher than forecast.”

The Crown accounts due on Oct. 9 will inform the half-year economic and fiscal update, it noted.

Treasury said that while growth among the country’s core trading partners remains solid, there are signs that global growth is easing.

The OECD downgraded growth projections for 2018 and 2019. Trade tensions between the US and China also have the risk of escalating, and the resulting global uncertainty could spill over into the real economy through lower sentiment and reduced investment, Treasury said.

Domestic inflation pressures are also expected to pick up gradually during the rest of 2018. Rising crude oil prices and the weaker New Zealand dollar means fuel costs are rising.

“We expect that annual headline consumer price inflation will lift to 1.6 percent in September and edge closer to 2 percent by the end of the year.”

(BusinessDesk)

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