New report cites three key factors in growth
Despite a “downward revision” to overall growth forecasts, the New Zealand Institute of Economic Research (NZIER) expects strong growth in residential investments over the coming year.
In its latest Consensus Forecast (CF) report, NZIER said that its downward revision to New Zealand’s overall medium-term growth outlook “largely reflects expectations that the rebound in household spending will not be as sharp as initially expected.”
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“On average, annual growth is now expected to decline by 2.6% for the year to March 2021 – smaller than the 4.8% decline forecast in the previous CF,” said NZIER. “However, growth expectations for the subsequent years have been reduced, with a smaller rebound of 4.8% forecast for the year to March 2022.”
Despite this, NZIER said that the country’s residential investment growth outlook has been revised up in the near-term. On average, NZIER has forecast residential investment to decline by only 0.1% for the year to March 2021, before “bouncing back strongly by 10.3% in the subsequent year.”
“Other investment is robust beyond 2021, reflecting the improvement in business confidence,” said NZIER. “Dwelling consent issuance and the NZIER Quarterly Survey of Business Opinion’s architects’ measure of activity in their own office indicates a robust pipeline of residential construction over the coming year. Low interest rates have contributed to the increase in housing demand, with the surge in house prices encouraging new housing supply to come on board.”
NZIER warned, however, that signs of capacity pressures building up in some sectors, and supply chain disruptions related to the COVID-19 pandemic are also driving up costs, and that could lead to higher consumer price inflation – which NZIER forecasts will range from 1.7% to 2.7% for the year to March 2024.
“The higher inflation outlook has led to expectations of an earlier pace of monetary policy tightening,” said NZIER, adding that it expects the official cash rate (OCR) to consequently start increasing from 2022.
“The range off forecast is wider in the longer term, with forecasts for the 90-day bank bill rate ranging from 0.2% to 1.9% for the year to March 2024,” said NZIER.
