New Zealand economic growth pickup to be modest, solid household income growth to support spending

New Zealand economic growth’s momentum is rebounding from a lull over later-2016 to early-2017. The pickup would be modest, with the economy facing capacity restraints and late-cycle economic challenges, two of which are finding skilled labor and keeping excesses in check, noted ANZ in a research report.

But business and consumer sentiment are elevated, the terms of trade buoyant, fiscal policy is likely to turn more expansionary, financial conditions supportive, tourism booming and migration strong. The projections show an economy expanding at a rate solid enough to continue to gradually absorb spare capacity. Core inflation is expected to accelerate slowly, along with interest rates.

The New Zealand recorded a disappointing mark rounding as 2017 began. The economy expanded just 0.5 percent sequentially in the first quarter after rising 0.4 percent in the fourth quarter of last year. In per capital terms, the economy actually shrank modestly with annual per capital growth now at just 0.3 percent year-on-year.

Spending in the nation is expected to be underpinned by strong household income growth. The household disposable incomes rose over 5 percent over 2016 and the growth is likely to be held around that level over the next few years, added ANZ.

While wage growth has been weakened, the reality is that overall labor income has risen strongly given the strength in employment and also hours worked per person.

“Even with our assumption that the household saving rate trends modestly higher, real household consumption is forecast to grow 3.9 percent and 2.8 percent in 2017 and 2018 respectively”, stated ANZ.

At 22:00 GMT the FxWirePro's Hourly Strength Index of New Zealand Dollar was neutral at -31.654, while the FxWirePro's Hourly Strength Index US Dollar was neutral at 28.4229. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest