Debt, housing dim bright picture
The New Zealand economy is back in top gear and firing on all cylinders, says HSBC chief economist Paul Bloxham in the international bank’s latest report.
But housing affordability and private debt levels are the big risk to financial stability and “will take many years to resolve”, Bloxham said.
Sydney-based Bloxham famously dubbed New Zealand the “rock star economy” in 2013 at the height of the dairy boom.
While his broad conclusions don’t differ widely from local economists he remains among the most bullish and optimistic about New Zealand’s relative position in the world.
HSBC is one of the world’s largest banks, so its reports hold considerable weight in the global market where they will be digested by investors assessing the prospects for New Zealand.
Bloxham’s latest report New Zealand in 2017 — Outperforming again highlights the country’s strong gross domestic product growth (GDP) last year and ongoing strength in tourism, construction and in-bound migration.
Bloxham underscored 2017 would be another good year for tourism. Among other things, the British and Irish Lions rugby union tour during June and July should see an influx of visitors from the UK, a traditionally strong market that has experienced lacklustre growth in recent years.
Rising dairy prices has removed a key downside risk, although Bloxham noted export volumes may still be a drag on growth given cutbacks in the sector.
The economy was also likely to see inflation creeping up in the coming year on the back of growth and rising commodity prices.
This means the Reserve Bank’s next interest rate move is now likely to be up, Bloxham said. Although at the moment it was expected to stay on hold until 2018.
“Following GDP growth of 3.2 per cent in 2016 we expect continued above-trend growth of 3 per cent in 2017,” he said.
Bloxham says the strong growth has also been underpinned by the Government’s improving fiscal position with net surpluses expected to continue in the near term.
This provided a “stark contrast with Australia’s more challenging budget situation”, he said.
However, Bloxham warned that housing affordability and rising household debt presented an ongoing risk to financial stability.
The growing prominence of speculative investors in the housing market represented a worrying trend, he said.
The rate of price growth had started to ease in markets like Auckland, although Bloxham expected growth to be sustained into 2018 by the inability of new building to keep pace with strong population growth.
Housing affordability was set to be the big issue for the general election this year. But the problem was unlikely to be resolved quickly, he said.
“The Auckland unitary plan should achieve this over time, however given current rates of construction an existing undersupply, it will take many years just to bring the Auckland market back into balance.”