'Pretty decent' economic growth predicted but uncertainty around housing market




ASB is predicting "pretty decent" economic growth, though the housing market is hard to call and likely will cool.

Source: Breakfast

Economic growth is expected to firm to about 3 per cent by the middle of 2018, according to the bank's Quarterly Economic Forecasts.

"While it's early days for the new government, there are some broad policy implications that will influence the economy - inbound migration will slow more rapidly, cooling population growth," ASB chief economist Nick Tuffley said.

"That means overall economic growth will not be quite as strong, although there will be some offset from stronger government spending."

Minimum wage increases will be more rapid than in recent years, and are likely to flow over to other wage rates if businesses want to retain relativity to the minimum wage.

"For small businesses, these wage pressures can be hard to absorb. It will really put the focus on seeking productivity gains to help 'pay' for the wage increases," Mr Tuffley said.

Even with some looming changes to the Reserve Bank's policy target, interest rates are still likely to be low for some time, certainly over the next year.

But the outlook for the housing market is a key area of uncertainty, Mr Tuffley said.

Future tax changes will make property investors more cautious, with flow-on effects to business supporting investors and real estate.

But at the same time, the government will be pushing hard to build more homes.

"We expect housing construction to continue to strengthen in Wellington and remain steady in Auckland, as ongoing housing supply shortages underpin construction demand in these cities," Mr Tuffley said.

Demand for new homes is likely to ease from cyclically high levels throughout the rest of the country as population growth slows.

"The Labour-NZ First government housing policies are likely to result in slightly less pressure on house prices than we previously expected.

"Nonetheless, we continue to expect the physical shortage of housing in Auckland and Wellington to support house prices."

loading error