NZ will keep ‘above water’ amid recession fears

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New Zealand's economy is not headed for recession, ASB chief economist Nick Tuffley says.

For all the gloom-laden predictions overseas which have prompted financial market volatility, this country's economy is not going to sink, says Nick.

"New Zealand's going to be comfortably holding its head above water ... but there's obviously a lot of nervousness about that global front and you can see why with all the trade shenanigans around."

ASB's latest forecast predicts the economy will grow about 2.5 percent a year, a figure close to Treasury and Reserve Bank forecasts but ahead of other forecasters who are picking growth closer to 2 percent or lower.

"We do put faith in those parts of the economy that are stimulating the economy at the moment. Provincial areas are doing really well out of high export prices, and you've got to remember we've got a tailwind from our population growth, which is about 2 percent."

There were more than a few headwinds, such as lacklustre business confidence which was hampering investment and a lingering uncertainty about government policy, while the external threats such as the US-China trade dispute, Brexit and weak global prospects pointed to the slowest growth since the global financial crisis.

The expectation is that the Reserve Bank will cut its cash rate by a further quarter percentage point to 0.75 percent in November to further support activity.

Nick says that should help to lift activity in the housing market and also stimulate consumers to spend more, and the government should stand by and be ready to support activity if the global downturn turned bad for the economy.

"The quick way to do that is boosted social welfare benefits or tax cuts to get money into the hands of people who will spend it.

"The key thing is let's not do the Chinese mistake and just spend money on anything to get some growth. We do want to see it well targeted and quality spending," says Nick.

-RNZ




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