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In its quarterly economic outlook, analysts at the Australia and New Zealand Baking Group (ANZ) say that the economy is at a crossroads and the political and international context will be crucial.

Key quotes

While capacity pressures have eased, economic momentum appears to be finding a floor, with drivers in place for gradual improvement over the next two years, despite headwinds.

2020 should bring a mild improvement in global growth, but for many economies, this won’t be sufficient to see inflation lift sustainably to target. The hurdle for further easing isn’t high, but with many central banks running low on ammo, it could be time for fiscal policy to up the ante.

Housing market strength, fiscal spending, high terms of trade, the tight labor market and low-interest rates are expected to provide support.

We assume the coronavirus outbreak will weigh a little on our export prices and volumes in the near term, but impacts are highly uncertain at this stage. GDP growth is expected to sit around trend on average, with inflation close to the target.

The RBNZ can afford to be patient, waiting to see how the story unfolds. We now expect the OCR to remain on hold at 1% for the foreseeable future. One of the factors adding to an improved domestic outlook is the Government’s announcement to lift infrastructure spending, and that means more NZGBs on the issue. 

We see upside risk from housing and fiscal spending, but large downside risks from unforecastable global shocks, including the potential impacts of the new coronavirus.