The ANZ New Zealand Economic Outlook report for July 2017 says the economic momentum is picking up from a lull over late-2016 to early-2017.
This pick-up will be modest, with the economy facing capacity constraints and late cycle challenges according to the ANZ New Zealand Economic Outlook report.
“Our forecasts depict an economy growing at a pace high enough to continue to absorb spare capacity gradually. But it’s a solid, rather than stellar, story. Core inflation will slowly rise, and interest rates too,” says the ANZ report.
“In regards to the international outlook, we forecast a steady picture for global growth heading into 2018. Attention is now turning to the inevitable winding down of quantitative easing (QE) excesses,” says the ANZ report.
“That presents challenges, although we view it in a positive light. But a likely pick-up in volatility as the liquidity cycle turns, together with political polarisation, limited policy manoeuvrability, high leverage and weak productivity growth is a potent mix. A lot will need to go right for things not to go wrong,” it says.
Looking at the primary sector, the ANZ is reporting the cyclical upturn in New Zealand’s soft commodity export prices has matured.
“We are not expecting a sharp turn lower. Dairy cash flow prospects look much better into mid-2018. Meat returns are exceeding expectations, but volumes are lower,” says the ANZ report.
“There were smaller kiwifruit and grape crops, but a larger pip fruit harvest. Price prospects are high for kiwifruit and steady for wine and pip fruit. Forestry prices continue to be robust, driven by China and local demands,” it says.
Looking at the financial outlook the ANZ report says with the RBNZ on hold for the next year, or so, local short end yields should remain anchored.
“A notable shift in the tone from some major central banks has seen bond yields snap higher, resuming what is expected to be a slow upward move. As this occurs, the New Zealand yield curve should steepen. We expect the NZD to weaken from current elevated levels, but compared to past cycles, the NZD’s decline should be modest,” says the ANZ report.
