ASB: Population growth pushing economy up

ASB: Population growth pushing economy up

A new report says population growth is the main reason the New Zealand economy is in positive territory.

The latest ASB Quarterly Economic Forecasts suggest economic growth will slow to 2.2 percent before picking up in the second half of the year. That is down from what Statistics New Zealand says was growth of 2.9 percent in the year to September 2015.

ASB chief economist Nick Tuffley says at a rate of 2.2 percent, population growth is accounting for much of New Zealand's growth.

"On a per-capita basis, there has essentially been no growth over the past year.

"We do expect growth will stabilise then recover over 2016 and 2017."

The economy has slowed because of weak dairy prices and slower construction growth, but the report says it should get a boost from lower interest rates and a lower dollar. That will see growth increase late this year and through next year.

"Declines in interest rates and the New Zealand dollar over the past year will help support growth - and further rate cuts later this year should provide an extra boost," says Mr Tuffley.

The official cash rate (OCR) is 2.5 percent, but ASB believes the Reserve Bank will have to cut rates again. That is because annualised inflation is 0.1 percent - well below the Reserve Bank's target range of 1 - 3 percent.

The report has been released as global financial markets are in turmoil. Investors have numerous concerns, including the slowdown in China, the plunging oil price and renewed uncertainty about the stability of the European banking sector.

ASB says New Zealand's direct trade links to the "relatively robust" Chinese consumer should limit the impact of the slowdown on New Zealand's exports.

Lower interest rates should see the dollar weaken from its current level of 66.49 US cents.

A bright spot for the New Zealand economy is the rise in tourism spending, with economists seeing strong growth in both visitor numbers and per-person spending.

The report identifies the housing market as one area of "key uncertainty."  It says it appears the Reserve Bank's investor loan-to-value ratio restrictions and the Government's tax rules are having an impact on activity and house prices in Auckland. However, there are some early signs that perhaps the initial slowdown was "a knee-jerk reaction".