Economic Overview - September 2019 Quarter


New Zealand’s economy has continued to grow in the face of increasing headwinds, albeit at a slower rate. Slower growth is a result of several factors, including soft consumer and business confidence combined with low levels of new business investment. The labour market has remained tight, labour costs have started to increase at a faster rate and there are other signs of capacity pressures in the economy which may limit the rate of economic expansion in the future. The growth in the number of overseas tourists coming to New Zealand has also slowed over the last year.  In addition, the global economic outlook has continued to deteriorate with the ongoing threat of trade wars between major trading blocks and the confused state of British politics around Brexit. All these factors have the potential to impact on our main trading partners’ economies and consequently our ability to sell them our goods and services.  

However, the economic outlook is not all bleak. The economy is expected to continue to grow, supported by robust commodity prices, a softer New Zealand dollar, increased Government spending on infrastructure, housing and other social services and strong population growth. Accommodative monetary policy settings will continue to provide ongoing support for future growth.

The Labour-led coalition is actively changing the housing market’s regulatory environment.  Legislation enabling urban development authority-like powers to the recently formed Kāinga Ora (formed from HNZC and parts of MBIE and MSD, and Treasury) is continuing to progress through Parliament and is likely to be passed in 2020. Under the legislation, Kāinga Ora is likely to be given development-enabling powers to override district plan regulations, have powers of compulsory acquisition, and allow them to provide their own infrastructure within a development. The Government’s KiwiBuild reset is still progressing and likely to evolve to include some form of “progressive ownership” (a shared equity product), to support middle income households into ownership. They have also announced some major proposed changes to residential tenancy agreements including limiting the landlord’s ability to end tenancies, vary rents, and increasing the level of maximum fines. These proposed changes may limit future investment in rental properties by landlords.

Housing market demand is also expected to remain strong over the next year. The annual overseas net migration gain totalled 54,600 people in the September 2019 year, which has continued to boost population growth around the country and support growing housing demand. In addition, mortgage interest rates have continued to decline, and this has provided some relief to homeowners although it now appears we may be at or near the bottom of the current interest rate cycle.

Nationally, on average, house prices are expected to increase in 2020. The RBNZ has forecast house price inflation in 2020 of 3.5% whilst Westpac’s economists have a more optimistic outlook and have predicted growth in house prices of 7.4% in 2020. The impact of these trends will be unevenly distributed around the regions. 

Economic overview prepared by researcher Ian Mitchell. 

Posted 24 days ago