In Westpac’s last economic overview it warned of an impending economic slowdown, due in part to the dairy downturn. But now, according to its chief economist, Dominick Stephens, it looks as though the economy dodged that particular bullet. “The bounce in global dairy prices means farmers are now facing tough, but not disastrous, market conditions,” he said. “But we are not out of the woods yet. Brewing El Niño conditions are likely to cause dry weather and knock the eco
nomy. And there will be further challenges from a global economic slowdown, the levelling off of the Canterbury rebuild, and the possibility of a housing market slowdown in Auckland.
“From a business point of view, the situation is not too bad. Extremely strong population growth will mean extra bodies in shops, and GDP growth will only slow to two per cent or so. But from a household point of view, the situation looks different. Per-capita GDP growth is expected to drop to nil, and unemployment is forecast to rise to 6.6 per cent.”
He added that the good news is that from late 2016 Westpac is forecasting a recovery in GDP growth to almost three per cent a year as the El Niño passes and the lagged effect of low interest rates and the lower exchange rate kicks in.
“But beyond that temporary fillip, we still expect the late years of the decade will be slow due to the wind down of the Canterbury rebuild,” he said.
“Through all of these ups and downs we expect one important dynamic to remain constant – low inflation. This is the key reason we expect the OCR to fall below 2.5 per cent next year, although we freely admit that the RBNZ does not currently share our view.”
Low inflation and a 2016 recovery in GDP growth forecast.
Nerine Zoio: nerine@insideretail.co.nz
