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Analysts at ANZ note that the New Zealand economy grew 0.6% q/q in Q4, in line with both their and market expectations, resulting in   slow down of annual growth from 2.6% in Q3 to 2.3% in Q4 (annual average growth eased from a revised 3.1% in Q3 to 2.8% in Q4).

Key Quotes

“We believe growth around these levels is the new – slower – norm.”

“Today’s print was below the RBNZ’s February MPS forecast for growth of 0.8% q/q, pushing their outlook for an acceleration in annual growth to 3.1% this year a little further into ‘optimistic’ territory. However, while we expect the RBNZ in next week’s OCR Review to acknowledge that the economy has lost a bit of steam, we don’t see today’s print as sufficient fodder to pull the Bank out of their data-dependent neutral mode – yet.”

“We don’t foresee the RBNZ significantly shifting its tone until it becomes unambiguously clear that capacity pressures are waning, and therefore will prove insufficient to sustain core inflation near the target midpoint over the medium term.”

“All up, we expect quarterly growth to average 0.6% over the next couple of years. This is a decent step down from an average of 0.8% over the past few years. In this environment, we expect capacity pressures to wane, with inflationary pressures lacking the strength required to maintain core inflation near the RBNZ’s target midpoint. Accordingly, we expect the next move in the OCR will be a cut and have pencilled the first in for November, with two follow up cuts taking it to 1% by late 2020.”