NZ economy continues to thaw while Europe casts an icy chill

Monday, 16 July 2012, 9:08 am
Press Release: ASB Bank

Media release
ASB Quarterly Economic Forecast July 2012

NZ economy continues to thaw while Europe casts an icy chill on global growth

• Europe is again making headlines, although a major global storm has so far been avoided.
• The NZ economy remains on a path of steady growth as Canterbury’s rebuild starts to get underway.
• Patchy national housing recovery continues, however supply constraints are the main driver.

After a brief period of respite, the Eurozone debt crisis and associated political and economic uncertainty has returned to cloud the outlook for the global economy, according to the latest ASB Quarterly Economic Forecast. At the same time, New Zealand’s economy continues to gradually improve despite continuing risks that Europe triggers widespread disruption.

ASB Chief Economist Nick Tuffley: “The ongoing European crisis is starting to impact growth around the rest of the world, which is likely to result in below-average growth prospects for New Zealand’s main trading partners.

“While European leaders have successfully staved off major disruption, they have not yet done enough to restore confidence that they have the means and the will to keep the Eurozone together. Fortunately, this icy chill has not hindered New Zealand’s growth, and over the next year we will see a gradual increase in momentum for the domestic economy, particularly with Canterbury’s rebuild,” he says.

Alongside an ongoing economic recovery, New Zealand has seen a return to steadily rising house prices. “For now, the dominant feature of the market is the low level of supply, especially in Auckland and Christchurch,” Mr Tuffley says. “A surge in demand has seen prices rise, especially in those two regions. However, while the economy remains soft, price increases will likely remain moderate.”

“Both the greater extent of domestic recovery and the strengthening housing market will start lifting inflation from 2013 onwards. But while Europe remains a key source of risk, the Reserve Bank will tread cautiously. We don’t expect the Reserve Bank to lift the OCR until March 2013 at the earliest, and Europe could yet prompt a longer pause, ” Mr Tuffley says.

Embargoed_ASB_Quarterly_Economic_Forecast_report_July_2012_FINAL.pdf

ENDS

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