Economists soften overall growth outlook

WELLINGTON: Economists have shaved a few basis points off their forecasts for New Zealand economic growth in the next two years even while forecasting stronger wage pressures, according to the NZIER Consensus Forecasts.

The June survey, which averages forecasts compiled from a survey of financial and economic agencies, shows that compared with the March survey projected gross domestic product has been cut by 2 basis points to 2.9% for the year ending March 31, 2019, and by 1 point to 3.2% in the March 2020 year. Exports are forecast to grow at a slower 1.6% pace in the current year before rebounding more strongly than was seen in the March survey.

‘‘Weaker forecasts for exports drive much of this downward revision in the near term. From 2019, expectations of weaker growth in investment explain the softer growth outlook,’’ NZIER said in its report.

It also said that employment was constrained in how much it could grow, which would limit any declines in the jobless rate, which would have the result of stoking wages. The survey shows private sector average hourly earnings might rise 3.6% this year and 3.2% in the March 2020 year, up from an unchanged 3% in the March quarter survey.

But an increase in wage inflation does not feed into generalised inflation, which is seen at an annualised rate just below 2% in the next two years. As a result, there is less need for the Reserve Bank to raise interest rates any time soon. The latest survey has the 90day bank bill rate averaging 2.5% in the March 2020 year, just 1 basis point down from the March survey. For 2021, the rate is down 1 point to 3.1%.

The residential construction market is seen as an area of uncertainty, despite the Government’s plan to build 100,000 affordable homes in the next decade. Fixed investment in residential assets is seen growing 2.9% this year, stronger than in the March survey, before slowing in each of the following two years. Yet forecasts for household spending were revised up.

‘‘Spending has been very strong in recent years, reflecting support from population growth and improving consumer confidence,’’ NZIER said. ‘‘Slowing population growth is expected to weigh on household spending.’’

For exporters, the outlook has improved, once 2019 is out of the way. Exports are expected to grow just 1.6% this year, down from the 2.4% pace predicted in the March survey, before rebounding in 2020 and 2021. The tradeweighted index might average 72.6 in the March 2019 year, falling back to 72 by 2021. The TWI was recently at 73.34.

‘‘Although the NZD has surprised on the upside, expectations remain for a depreciation through to 2021,’’ the NZIER said.