Low economic growth on the horizon - Infometrics

Low economic growth on the horizon - Infometrics
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Rising transport costs and a higher minimum wage are squeezing business profits, according to a new report.

Infometrics' latest forecast says that could lead to disappointing economic growth in New Zealand in the next two years, despite the latest GDP figures showing the fastest rise in two years.

The forecast says lifting prices to match rising costs is not viable due to competitive pressures, particularly in the retail sector.

Infometrics' chief forecaster Gareth Kiernan says there are other factors at play also.

"The fall in employment and investment intentions since August last year is much larger than would normally be expected under a Labour government," he said.

"This deterioration is more than political posturing and implies a real reluctance to push ahead with major business decisions."

The report also confirms concerns about fallout from the ongoing US-China trade war, with dairy prices an early indication of the possible effects of the dispute between the two international heavyweights.

Earlier this week Fonterra lowered its forecast milk price, reducing the revenue flowing through to farmers and provincial economies.

The report also finds that consumer confidence is decreasing, with soaring petrol prices cramping consumers' ability to spend, while stagnating house prices are also affecting consumer confidence.

"On their own, none of these risks would be overly concerning. But it seems likely that at least one of these factors will undermine economic growth in coming quarters," Mr Kiernan said.

"If that occurs, the Government or Reserve Bank could be forced to respond with more stimulatory fiscal or monetary settings."

But only three weeks ago Statistics NZ reported the best quarterly GDP figures in two years - up 1 percent, double what the Reserve Bank predicted. Fifteen out of 16 industries recorded higher production, with mining the only industry to decline.

Unemployment is at 4.5 percent, about the same as it was a year ago.