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28/11/2018 — General
Population decline a brake on economy

Declining population growth has prompted an economic downgrade from the New Zealand Institute of Economic Research (NZIER).

The influential NZIER forecast now expects annual gross domestic product (GDP) growth to average around 2.8% over the next five years.

NZIER's principal economist Christina Leung said yesterday: “While that (2.8%) represents a respectable outcome for the New Zealand economy, there are downside risks to the outlook, Ms Leung said.

ASB and Westpac economists last week said in separate reports GDP was expected to come in under 3%, as opposed to over 3%, between now and early 2019, citing the unknown effects of China-US trade tensions and domestic business outlook surveys.

In September Ms Leung's consensus forecasts at the time showed a further slight downward revision to the country's latest growth outlook.

At the time she said annual GDP was expected to peak at 3.1% for the year to March 2020 before dropping to 2.7% by 2022, averaging 2.9% to 2020.

Yesterday, she said that in NZ business confidence had continued to deteriorate and businesses were also reporting some softening in their own demand.

“Weaker profitability is also reducing firms' appetite to invest,” she said.

There were also negative risks offshore from increasing US-China trade tensions, uncertainty over how Brexit would play out and local market adjustment to higher global interest rates.

She expects the Reserve Bank will keep the interest-driving official cash rate at the record low 1.75% until March 2020.

“Interest rates are lifting globally, led by the US Federal Reserve,” she said.

While the Reserve Bank continued to highlight the potential for the OCR to move lower should New Zealand growth not pick up as much as forecast, Ms Leung expected the next interest rate move to be up.

*Simon Hartley is senior business reporter and assistant chief reporter for the Otago Daily Times.

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