Economic activity picks up but several headwinds loom - Infometrics

Infometrics principal economist Brad Olsen warns of several looming headwinds.
Infometrics principal economist Brad Olsen warns of several looming headwinds. Photo credit: Newshub


Employment and population growth are continuing to support the economy despite the pressure from inflation and interest rates, but there are warnings of potential headwinds from the primary sector.

Economic consultancy Infometrics' quarterly economic monitor showed a 1.4 percent per annum increase in provisional economic activity in the June quarter.

It said some parts of the country had solid growth, but others were still feeling the effects of the severe weather over the first half of the year.

"Another strong increase in employment, the rise in the working age population, and the 0.3 percent quarterly increase in hours worked in the economy have combined to suggest a rise in underlying economic momentum picked up slightly after falling back earlier in the year as weather disruptions dominated," Infometrics principal economist Brad Olsen said.

Employment activity remained strong despite the easing labour market pressures, with filled jobs up 3.5 percent from a year ago.

"Tourism-focused employment has supported stronger jobs growth, with more than 10,000 additional roles in the accommodation and food services industry supporting the still-robust level of domestic travelling going on, plus the continued revival of the international tourism sector," Olsen said.

But he said the economy faced a number of headwinds, with a weaker outlook emerging for the building sector as residential building consents fell 20 percent in the June quarter from a year ago.

The primary sector also faced headwinds, which meant uncertainty for growth in the regions, he said.

The most recent ANZ Commodity Price Index in July showed dairy prices were down 20 percent year-on-year.

"Accounting for inflation, forestry prices are the lowest since at least 1986, and the cut to the dairy payout is expected to cost in the order of $2.2 billion in the 2024 season," Olsen said.

"On-farm costs are up 12 percent per annum, which together with the price cut will see spending and investment activity across the primary sector heavily curtailed."

Olsen said the next year would be challenging for the economy as higher interest rates were expected to limit spending and investment, and as the labour market continued to loosen.