Flat economic growth expected for fourth quarter, yearly GDP 'is going to be negative', expert Cameron Bagrie says

New Zealand's economy was likely flat in the fourth quarter of last year as consumer spending continues cooling, and yearly gross domestic product "is going to be negative", Cameron Bagrie says.  

Statistics NZ's fourth quarter GDP report, to be released next week, would reinforce hopes for some interest rate relief in the coming months, said Bagrie, an independent economist.  

"What we're also seeing is that central banks around the globe... are expressing a little bit more confidence that inflation is under control, interest rate cuts around the corner at some stage and our own Reserve Bank, a few weeks ago, was not as hawkish as what people probably feared," Bagrie told AM. "Interest rates could still go up but that's [just] a scenario - there are a whole lot of other scenarios and the central scenario looks like, at the moment, we're going to see interest rate relief."  

According to an ASB forecasts, GDP likely decreased at a 0.2 percent quarterly rate in the three months to December. That would follow a 0.2 percent deceleration in the July-September quarter and place New Zealand back in a technical recession.  

"It's a bit of a devil's choice," explained Bagrie. "In a perfect world, you'd like the combination of strong growth and incredibly low interest rates, and we saw that over recent decades - what's called 'the great moderation.'"  

The Reserve Bank was expected to keep the official cash rate unchanged at 5.5 percent at its next meeting in April, ASB said. The major bank has rate cuts pencilled in for December.  

"Unfortunately, we need to see firms' margins get hit," Bagrie said.  

Cameron Bagrie.
Cameron Bagrie. Photo credit: AM

"As profitability gets hit, firms focus on costs, unfortunately that means the unemployment rate moves up... that means wage growth comes down a bit.  

"That combination is in motion at the moment and it's allowing markets... to think, 'Look, interest rates are coming down but let's not get overly excited - interest rates are still a long way away from the levels we've been used to in the past five to 10 years.'"  

Bagrie's comments come as fixed home lending rates continue to fall among New Zealand's major banks.  

ASB on Monday dropped its fixed home lending rates for the third time in two weeks - with its six-month, one year and two-year terms being reduced. Kiwibank also moved to trim its mortgage rates.