The New Zealand economy has come through a relatively subdued six months. A series of one-off negatives impacting the final quarter of 2016 and the first quarter of 2017 conspired to deliver below trend growth of 0.9% over the six months to March. Two consecutive quarters of low growth begs the question of where to from here?
Growth in consumer activity to remain solid as population growth remains strong and labour income continues to rise.
We see annual average GDP growth of 2.6% this year, rising to 3.0% in 2018 on the back of a return to trend plus a bit of fiscal stimulus, before moving lower again to 2.5% in 2019.
Headline inflation has spiked higher over the last two quarters but we expect this to move lower in 12-months, while core inflation remains benign.
Monetary policy on hold until mid-2018, although with recent weakness in growth we see a first hike coming later rather than earlier.
We retain a neutral view on interest rates, however, we expect both short and long-term rates to move higher toward the end of 2017.
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