There has been much talk by some economists that the economy is slowing and the housing market is going to hit the wall.
However, Infometrics managing director Andrew Gawith is painting a more optimistic picture. He says that “economic growth may be cooling after a strong performance in 2004, but it’s not all doom and gloom.”
Infometrics’ latest forecasts predict the economy will expand by more than 3%pa over the next five years – a prediction very much in line with the OECD’s thinking on New Zealand’s medium-term economic prospects.
A key concern over the next couple of years is a possible slump in real estate values that would dent household confidence and spending.
“But the rapid decline in new house building will limit the extent to which the market becomes oversupplied, and therefore house prices in most areas are likely to stagnate, rather than fall.
“Households, in other words, will get to keep most of the wealth gains they’ve accumulated since 2001/02.”
Gawith says that higher productivity will be the key to sustained economic growth. One part of this is higher quality government spending.
“Given the government’s interest in lifting productivity, and opposition parties’ concerns about sloppy spending and their keenness to cut taxes, there is a good chance of realising some of the potential productivity gains from the government sector,” he says.
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