Economic outlook, analysis and forecasts

New Zealand - Economic forecast summary (June 2016)

 

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Economic growth is projected to moderate somewhat to 3% in 2016 and 2.7% in 2017. The impact of lower dairy prices on exports and an end to stimulus from the earthquake-related rebuild will curb activity, although the slowdown in construction will be attenuated by expansion elsewhere in response to high immigration. Immigration will also sustain growth in private consumption. Inflation will rise but stay below target.

The Reserve Bank has continued to lower its policy rate and signalled more cuts to come, as persistently below-target inflation risks pushing already low inflation expectations down further. Weaker global growth prospects and recent currency strength have accentuated this risk. Fiscal policy is still on a consolidation path, which seems appropriate given robust domestic demand.

Reducing barriers to FDI and to competition in the electricity, transport and telecoms sectors would facilitate greater investment and innovation, increasing productivity and reducing prices. The innovation framework should be strengthened, for example by reinstating the R&D tax credit. Greater urban infrastructure would promote productivity-enhancing densification. Further reforms are required to enhance skills development, especially for disadvantaged groups.

 

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