Economy defies gloomy predictions

Figures due out this week are expected to show the economy accelerated at the end of 2017 rather than stall after the surprise election result.

On Thursday, Statistics New Zealand will release gross domestic product figures, giving an indication of how quickly the economy grew in the three months to December 31.

The quarter covered a period during which business confidence plunged to the lowest level in around nine years, amid both election uncertainty and the surprise change in Government.

But although economists warned at the time that the fall represented a threat to growth, official figures show there has been little impact.

A poll of economists found the market expects the economy expanded by 0.8 per cent in the quarter, which would mean it expanded by 3.1 per cent over 2017, up from 2.7 per cent in the year to September 30.

ANZ senior economist Phil Borkin said the bank expected ‘‘respectable’’ 0.7 per cent growth, adding that the bank had softened its view for the New Zealand economy towards the end of 2017.

‘‘However, the recent flow of data has suggested that if there is to be a growth wobble, it is unlikely to be a large one – that’s encouraging in terms of what it suggests about the economy’s flexibility and resilience,’’ Borkin said.

But the bank’s overall view of an economy late in a growth cycle had not changed.

‘‘Firms are facing greater margin pressure. The low-hanging fruit growth-wise has already been picked and we need productivity growth to lift to maintain decent rates of activity growth from here, given that recent population and labour utilisation growth is unlikely to be maintained,’’ Borkin said.

ASB economists said growth had been strong at the end of 2017, led by strong retail sales and a rebound in the housing market. But the bank warned the impact of greater political uncertainty was still coming.

‘‘We expect the impact of the change in Government to hit with a lag. Policy-related uncertainty may delay investment and employment decisions, which could temporarily weigh on economic activity over the first half of the year.’’

Measures of both building consents and manufacturing activity pointed to weakness at the start of 2018, while business confidence remained low.

‘‘As further policy details are revealed we expect business confidence to recover and for investment and employment activity to resume,’’ ASB said.

‘‘Beyond the near-term uncertainty, the key challenge for the economy will be escalating capacity constraints (particularly in the labour market) and the cost pressure that will come along with increasingly tight resources.’’

Westpac senior economist Michael Gordon was more downbeat, predicting the economy expanded by just 0.6 per cent in the final quarter, roughly the speed at which the population is growing.