NZ's economy seen weakening

HAMISH RUTHERFORD
Last updated 16:47 04/08/2014

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New Zealand's economic growth is at risk of faltering, Treasury warns, with the outlook for growth beyond this year looking weaker than in recent months.

In its monthly economic indicators paper, Treasury analysts warned that data published in July pointed to a slipping in economic confidence, with lower export prices and a dampened housing market.

"Export values fell sharply in the June quarter as both prices and volumes weakened," the report said.

"Import values rose modestly but the exchange rate appreciated, reducing import prices, pointing to a larger increase in import volumes."

Pointing to risks of higher inflation in 2015 leading to increases in interest rates, the report said that while the recent strong economic growth would continue this year, longer-term there were increased risks of weak growth.

"Overall, data releases in June suggest activity in the economy will continue to expand at a solid pace through the remainder of 2014, but downside risks to the outlook for price and income growth in the economy have increased recently, especially with the recent falls in dairy prices," it said.

Last week dairy co-operative Fonterra slashed its forecast payout to its thousands of shareholder farmers to $6 a kilo of milk solids. While this is high by historic measures, it is well down on the $8.40 farmers were paid this season.

Meanwhile various surveys showed business confidence has slipped in recent months, although it remains high by historic levels.

Last week Finance Minister Bill English acknowledged that growth was flattening, which he linked to the prospect of moderate interest rate increases.

"What we know is that growth rose pretty rapidly over the last 12 months and now it's flattening out a bit," English said.

"We are trying to do what we can to ensure that there isn't excess pressure on interest rates, so the Reserve Bank governor had the benefit of having the Government saying it's not going to do a spendup in the run-up to an election."

Later this month Treasury will release the pre-election economic and fiscal update that will give a fresh set of forecasts, which will help frame the economic debate for the September 20 election.

In its July release, Treasury still expects the number of jobs in the economy to grow, with close to record levels of workforce participation being offset by strong levels of inward migration.

"Quarterly employment growth is expected to ease in June, but annual growth is expected to increase to around 4 per cent," Treasury said.

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"Unemployment is expected to fall modestly from 6 per cent in the March quarter, even as participation remains high, supported by the high level of migrant inflows."


- Stuff

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