'Winter of discontent' fails to hit economy - ASB

The New Zealand economy is "holding up well despite enduring a winter of discontent", economists say.

The latest ASB Quarterly Economic Forecast says the trade war between China and the US hasn't had the impact initially feared - at least yet - and the widely reported plummet in business confidence hasn't seen a corresponding drop in GDP growth.

"It may seem strange but it's true, that despite two high-profile uncertainties - stubbornly-weak business confidence and escalating trade tensions between the US and China - we expect that growth in the last part of 2018 and early 2019 will be only a touch softer than what it could have been, slightly below 3 percent instead of slightly above it," said ASB chief economist Nick Tuffley.

"That's because while surveying shows us that uncertainty about Government policy is still impacting business confidence and keeping it at low levels, we are encouraged that, to date, there are few tangible signs that the plunge in business confidence has filtered through to economic growth."

After a year "battered by storms" he says the economy is "slipping into some summertime stability".

"Capital goods imports are holding up, as is credit growth to business. And as the Government firms up key policies, over time the uncertainty business is feeling should reduce."

ASB expects the official cash rate to stay at its record low until at least August 2020 - six months beyond its last prediction.

"This reflects our judgement that the growth and medium-term inflation outlook will not be strong enough to clear the high hurdle necessary to trigger an OCR hike," said Mr Tuffley.

Even then, they expect it won't get over 2.75 percent.

"The Reserve Bank will be mindful of not getting policy settings too far out of sync with other central banks."

In addition to low business confidence and the US-China tensions, the ASB report notes increased fuel and rent costs as another potential party-pooper.

"Rising costs for necessities are putting the squeeze on households, particularly those with less disposable income and tighter budgets," Mr Tuffley said. "Areas of the economy that are exposed to discretionary spending are likely to be vulnerable in the short term."

And US President Donald Trump's losses in the recent US mid-term elections pose another risk, with fears he'll double-down on his 'America First' agenda and ramp up tariffs, hitting big New Zealand trade partners like China.