ASB outlook: things are not that bad

The ASB economists are providing a different view of the economy than the ones recently released by their counterparts in other retail banks. Business editor Dene Mackenzie reviews some of the happy forecasts provided by the ASB.

ASB chief economist Nick Tuffley is advising people to ‘‘Don’t worry, be happy

. . . please’’ about the future of the economy.

The first thing he wants to say about New Zealand’s growth outlook is that he and his fellow economists are positive about it.

The ASB expects growth to pick up from the moderate pace that set in from the middle of last year, heading back to the 3%plus pace heading into next year.

During 2020, percapita growth should settle around the pace averaged during 2012 to 2016 — the purple patch of New Zealand’s post global financial crisis economic expansion.

‘‘We see an economy that is being supported by solid fundamentals, with the drivers of growth being slightly more tilted to net exports.’’

Global growth remained ‘‘very respectable’’ provided fullblown trade wars did not occur, Mr Tuffley said.

The terms of trade should hold close to their recent record high, courtesy of strong export prices.

The export performance was boosting incomes across many regions of New Zealand.

For the past three years, provincial New Zealand has taken the top ranking in the bank’s Regional Scoreboard, he said.

Domestically, supports remained in place. Interest rates would stay low into 2020 on ASB’s official cash rate outlook.

Population growth would continue at an aboveaverage pace, even as the net migration inflows gradually slowed.

A stronger focus on the quality of inbound migrants, such as refining lists of needed skills, should mean a greater economic contribution from the slight mix shift, Mr Tuffley said.

Housing construction was set to surge again this year. The Government was delivering more stimulus through more welfare support and added infrastructure development.

However, there was likely to be some drag from commercial construction, particularly in the wake of the construction sector’s internal challenges.

Weak business confidence risked holding back investment by businesses, he said.

There was a lot of debate about the direction of the economy, particularly given the lows to which business confidence had fallen over the past nine months.

‘‘Our forecasts put us at the ‘cheerleading’ end of the spectrum.’’

What seemed relatively certain was New Zealand’s expansion had been going for a considerable period and it did need some fresh drivers as recent ones matured, Mr Tuffley said.

Businesses were starting to face added cost pressures but seemed less certain of their ability to pass those on or sufficiently adapt.

Businesses had genuine anxiety about potential shifts in Government policy, such as industrial relations, which might not recede until clarity was provided.

Aside from the risks from current trade tensions, business uncertainty was the biggest danger to a decent growth outlook, he said.

‘‘The risks are clear.’’