NZ: Stocking half full - ANZ

Some clear headwinds are being navigated right now that have increased the odds of a growth wobble, leaving the New Zealand’s economy somewhat delicately placed, according to analysts at ANZ.

Key Quotes

“We are not ready to call time on the cycle just yet. The drivers of growth are shifting, and such transitions are often not smooth, but there are still enough positive forces that we expect to see growth return to broadly around trend over the next couple of years (but probably not much more). In itself, trend growth is unlikely to be enough to get domestic inflation pressures up in a sustainable fashion, but signs of more cost-push pressures from the labour market are something that we think the RBNZ will eventually respond to, albeit in a tip-toe fashion. That said, the timing of that response is highly uncertain and skewed towards later as opposed to earlier. It is admittedly a more nuanced economic story, but one that still has a positive hue to it overall.” 

“Property Gauges

Housing market activity has shown a few more signs of life of late, bouncing off low levels. However, our overall views have not changed. There are clear opposing forces. On the one hand, strong population growth coupled with a challenged supply backdrop argues that a fundamental supply-demand imbalance will continue to drive prices higher. Yet this is going head-to-head with a base in the interest rate cycle, tighter lending standards, LVR restrictions, affordability constraints and possibly more restrictive government policy changes. We continue to see prices plateauing for now.”

“Mortgage Borrowing Strategy

Movements in average mortgage rates were again small in the month, but the decision between fixing for one or two years is becoming a closer call in our view. The 1-year rate remains the low point and therefore offers value. But the gap to the 2-year rate has narrowed, and may be attractive for those concerned about the possibility of the OCR moving up within the next 12 months. That is actually our forecast, although we do see the risks skewed towards a later as opposed to earlier move, and see the OCR moving up only in a tip-toe fashion when hikes do get underway. Ultimately, borrowers may wish to spread risk by borrowing over a number of fixed terms.”