The New Zealand Institute of Economic Research has downgraded their Gross Domestic Produce outlook which is weighing on the kiwi and capping bullish attempts. The GDP growth outlook revised down at 2.2% from the previous survey at 2.3%.
Key notes
- key drivers of the downward revision were lower expectations of business investment and exports, which were partly offset by slightly stronger expectations of household spending. uncertain global growth outlook has dampened expectations for export growth
- business confidence has fallen in the face of persistently weak profitability
- businesses becoming more cautious about investment
- consumer confidence remains positive “¦household spending growth should remain robust over the coming years
- expectations for the labour market – lower employment and wage growth and a higher unemployment rate over the coming years
- interest rate expectations have been revised higher for the coming year, but slightly lower beyond 2022.
FX implications
The bird was one of the top performers for the month od Dec in the G10, reaching as high as 0.6635 on the trade deal noise last week, extending its October reversal of the summer slide from just below the 0.68 handle. Indeed, the bird can continue to strengthen so long as the economic backdrop and trade relations continue to find traction. However, on forecasts such as this, it will be hard to justify the upside – Trade headlines will remain a driver but the domestic focus will be on NZ third-quarter GDP.
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