by Miriam Bell
ANZ’s last market focus report of the year is now out and the predictions are for ongoing solid economic growth.
There was economic growth of around 3.5% over 2016 and the bank’s forward indicators suggest that a similar pace of annualised growth is on track for the first half of 2017.
The key drivers for this growth are familiar and likely to persist.
They include strong population growth due to record migration, a large construction sector pipeline, a strengthening labour force, booming tourism and better prospects for the dairy sector.
ANZ chief economist Cameron Bagrie said that while activity growth is likely to moderate over the course of 2017 as natural headwinds build, they don’t expect a full-blown downturn.
“The global scene remains a key risk but the economy does not have the internal imbalances, or excesses, that we’ve seen before at this stage of the cycle that can demand the piper is paid.”
It was possible to identify some worrying signs that would usually foreshadow a downturn, like excessive credit growth and overvalued house prices.
However, Bagrie said that external imbalances are contained, the housing boom has not turned into a consumption boom, and domestic inflation pressures remain low.
Further, the regulatory framework has been tightening and financial institutions are actively leaning against the top of the cycle given funding pressures.
These factors won’t stop a slowing of growth – which will moderate on the back of capacity constraints, easing credit growth, tighter financial conditions and a cooler housing market – but that is natural and healthy, he said.
This means that the Reserve Bank will no longer be feeling pressure to cut the OCR from its record low of 1.75%.
Bagrie said that with strong growth, capacity pressures emerging, and inflation past its lows, further OCR cuts would now be difficult to justify.
“We expect the RBNZ to start gradually removing stimulus by mid-2018. We forecast 50 basis points of OCR hikes over 2018, lifting the cash rate to 2.25%.
“However, we currently see the risk skewed towards earlier action and would not completely rule out RBNZ hikes in the second half of 2017.”
ANZ has previously said it believes mortgage rates have seen their lows and that from here on in they will rise, albeit gradually.
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