ASB Bank says New Zealand's economic recovery will be more Toyota Prius than Ferrari - steady, but not speedy. Photo: 123RF
- Economy on the road to recovery, but travelling in a Toyota not a Ferrari
- Moderate growth of about 1.5 percent growth this year, rising to 2.5 pct annually after
- Strong commodity exports and tourism offer short term growth
- Global trade outlook and tariffs the key threat
ASB Bank says New Zealand's economic recovery will be more Toyota Prius than Ferrari - steady, but not speedy.
The bank predicts growth of 1.5 to 2 percent this year, picking up to 2.5 percent in the next few years.
Strong exports, tourism, and cheaper retail rates are expected to fuel the rise.
ASB chief economist Nick Tuffley said productivity was not as high as it was before Covid-19 and population growth was slowing, with the "migration boom" over.
At present growth is relying on continued strong showing for meat and dairy exports, and tourism, while the fall in retail interest rates will gradually lift household spending.
"They will soon plateau at their new 'normal' level, which is higher than what NZ enjoyed in the 10 years leading up to the pandemic."
"Their impact on growth will be steady rather than explosive - though they will markedly improve the cashflows of home-borrowers over the year," Tuffley said.
"Around 2, 2.5 percent growth is I think what we need to be prepared for until we start to really boost our productivity a bit further," he told Morning Report on Monday.
"It will help. We do need to get back into growing that tax base a lot faster - so that's the dollar size of our economy. So we're certainly on track to help that.
"But obviously, like over the longer-term, when you're looking at how we deal with New Zealand's challenges around affording the things that we want, that productivity story will be important."
Two more cuts to the official cash rate by the Reserve Bank to a low of 3.25 percent are expected, but a further cut might occur if justified by the global environment.
Inflation is expected to bounce around over the next couple of years, possibly above the 1-3 percent target band because of foreign price rises.
The housing market was expected to tentatively recover, as was the labour market which appeared to be stabilising.
However, the slowing in migration, which peaked at more than 130,000 in late 2023 but has now eased to just above 30,000 annual gain, would reduce a driver of activity, while the stalled construction sector and weak productivity growth were further restraints.
The economy rebounded more strongly than expected out of recession in the latest Stats NZ figures, on the back of improved agricultural production and tourism spending. GDP rose 0.7 percent in the three months ended December, to be 1.1 percent lower than a year ago.
US President Donald Trump's upcoming 'Liberation Day' tariffs this week would have a big impact on the New Zealand economy if they slapped new costs for US consumers on everything the country imported, Tuffley said.
"It's gonna really depend on how comprehensive we see things coming through. So our [Commonwealth Bank] colleagues in Australia have done quite a bit of global analysis, and some situations where tariffs aren't too widespread globally, the impact on us might be a tenth or two of a percent of GDP.
US President Donald Trump. Photo: AFP / Andrew Caballero-Reynolds
"Probably the one that would be most challenging is if the US just slaps say a 20 percent tariff on literally everything it imports - and that would have an impact of probably somewhere close to 0.75 percent of our GDP over the medium-term if we saw that.
"From a New Zealand point of view, the main challenge is that we have a direct exposure to the, to the US. It's now our second biggest trading partner. But countries like China, which is our biggest single export destination, actually have a relatively low exposure of its GDP to the US, which may sound a bit surprising."
Tourism was bouncing back after a tough five years since Covid-19, despite the Chinese economy "not exactly that strong either".
"That's a really good sign," Tuffley said.
"And of course, dairy and meat, doing really strong at the moment, but of course with our meat exports, we're also hanging out for 'Liberation Day' to see whether we're going to be impacted by that."
Instead of relying on migration and housing price inflation, Tuffley said it was much-needed "rebalancing".
"We went through a period where it was all about domestic spending and we started to see a big current account deficit blow out. So we do need to see a bit of a shift around where those export sectors are doing, doing better.
"And what's encouraging is that it's been a little bit more broad-based. So yes, it's really dairy and meat - on the good side where we've been really strong, but having that tourism recovery go from basically virtually no one to, you know, reasonable earnings again, is a really encouraging sign for just getting the economy back on a more even keel."
He said in a worse case New Zealand growth could be curtailed by as much as 0.75 percent, although such an impact was survivable.
"The economy is on the mend. But domestic drivers point to a moderate pace, and global developments could dampen the recent good fortunes of New Zealand's export sectors."
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