Official cash rate may be cut 'two or three times more' - Cameron Bagrie

While buoyant throughout June, current property and equities markets indicate that things are getting tough out there.

Despite falling interest rates, a slowing property market and uncertainty around trade markets, the latest ASB Bank Investor Confidence Survey is relatively upbeat.

However, independent economist Cameron Bagrie disagrees, telling The AM Show on Monday that while equity markets were pretty buoyant and popped up over June and July, August is shaping up to be different. 

Reflecting on the last few months, Bagrie said the property market is moving sideways - and with Auckland included, is actually going backwards.

"We're still focused on the annual percentage changes, which are up, but the latest numbers are actually showing that the market is weak."

Typically, in a tougher environment interest rates go down, while asset prices move up.  However, the global economic environment is looking increasingly fragile.

"If you look at equity markets, [they're] down 3 percent in the week. That's not a good economic signal," said Bagrie.

"As interest rates are moving down around the globe... we're seeing a NZ US 10-year bond is sub-1.5 percent. If the Reserve Bank cuts the official cash rate (OCR) [to be announced Wednesday], we'll see more pressure for deposit rates to move down.

"Dividends are starting to edge down, in line with interest rates. We're seeing cap rates across the commercial property market move down as well."  

For people with money in the bank, if the property market and equities are flailing and interest rates are down, where are the returns?

"Your best piece of advice at the moment is to go and talk to a professional financial adviser and set out what your personal circumstances are," said Bagrie.

Bagrie says he expects the OCR will be cut again this week, but there are concerns not only about the outcome of that announcement.

"The way the economic portrait is shaping up, I suspect the Reserve Bank will be cutting the OCR - not just once, maybe two or three times more. While we're going to like that, it's because we've got a weaker economy."

With labour market figures due out shortly, "the general consensus seems to be that the unemployment rate is going to pop up".  

Is the economic outlook softer now in comparison to Budget figures?

"The Budget was projecting GDP growth would be returning towards 3 percent by late 2019, middle of 2020," said Bagrie.

"At the moment, the economy is running around 2.5 percent [March quarter figures]. If I have a look at where I think the economy was over the June quarter, annual percent change, we're down to around two."

Various business outlook surveys suggest that the economy is tracking around 2 percent growth in the back half of this year.

"It's not obvious what's going to fire and pick the economy up in 2020," said Bagrie.

While the lowering of interest rates may stimulate borrowing and the housing market, in the current environment of stretched valuations and with banks tightening up the availability of credit, we may need to sit tight on our investments and/or get professional advice to weather the expected period of low-growth investment returns.

The OCR announcement is expected on Wednesday. Labour market figures to June 2019 are also due to be released soon.