Bullish Budget GDP growth forecasts will be ‘a stretch’

Monday, 28 May 2018, 9:43 am
Press Release: Milford Asset Management

Bullish Budget GDP growth forecasts will be ‘a stretch’

Milford Asset Management Portfolio Manager Mark Riggall says that while Budget 2018 reveals that the New Zealand economy is in great shape at the moment, meeting the Government’s forecast of 3% year-on-year GDP growth is going to be a stretch.

He told Ian Fraser in an online interview this week that “we know the drivers of the New Zealand economy fairly well, being migration, tourism, construction activity and housing. We know migration is slowing, tourism arrivals are not accelerating at the rate they were, construction activity remains solid, but housing market growth is flat and fairly anaemic, especially in Auckland. So, those tailwinds are not blowing as strongly as they were. The forecasts have already changed quite a lot in the last nine months. Forecasting three years away is very difficult and the outcome against the forecasts could be markedly different.”

Further complicating the outlook, business confidence continues the mood of pessimism registered immediately after the 2017 Election. Mark Riggall doesn’t think the Budget is likely to have any significant impact on flagging business confidence.

“Part of the fall in business confidence after the Election was clearly a protest vote by business against the new Government but I think we’re probably past that now. So, what else is going on? Part of the answer might lie in the fact that there’s a lot of industry reviews going on at the moment and that potentially leads to more regulation of business going forward. Couple that with rising minimum wages and you’ve got companies with increasing regulation uncertainty and rising costs going forward. No wonder they’re a little bit cautious about the outlook.”

He sees a risk that if confidence stays sluggish, businesses at a point could slow down or even stop investing.

“Uncertainty in general is a big hurdle for businesses thinking about increasing their capital expenditure. So, continuing pessimism could potentially be a brake on the New Zealand economy.”

For more on Mark Riggall’s view of the Budget and the recent Reserve Bank announcement on the cash rate – watch his video here.

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