NZ At A Glance

New Zealand At A Glance

Nick Smyth -

New Zealand threatens to move into a pseudo-stagflationary environment. Growth is slowing and we doubt that even the substantial fiscal stimulus that is being delivered will result in a significant increase in the pace of the expansion. Supply issues such as physical capacity constraints, infrastructure bottlenecks, a low unemployment rate, and declining working age population growth are major factors behind the softening. In turn, these drivers create a modicum of inflationary pressure which is exacerbated by a weakening currency and government charge increases. Against this backdrop, the RBNZ seems reluctant to shift interest rates and appears to be keen to use the full flexibility that a target range permits.

New Zealand At A Glance

Craig Ebert -

The NZ economy continues to perform relatively well. And there is much to sustain momentum. This includes a sizable fiscal stimulus, which kicks in proper from mid-year. From a broader perspective, however, growth still looks inclined to settle a bit lower. That said, inflation is primed to increase, as a consequence of chronic capacity constraints, resurgent commodity prices, and a tiring NZ dollar. This will press the case for the cash rate to rise, although we expect the RBNZ will lag in this process. Risk factors coalesce around currently-stretched asset prices – here and abroad – in the context of ongoing removal of global monetary stimulus, led by the Fed.