The New Zealand economy muddled through 2019.
Businesses and consumers were in a funk for much of the year – with confidence to spend, invest and hire workers fragile.
GDP growth in the September 2019 year was 2.7%pa, compared to a peak of almost 4%pa in 2016.
A thaw of sorts has occurred in more recent months. Confidence has stabilised, and economic indicators of demand such as retail spending, house prices, and population growth have exceeded expectations.
Nevertheless, the outlook for 2020 is still one of grumpy growth.
The economy is likely to continue growing, but in a little bit of a higgledy-piggledy fashion.
Six key themes to watch in 2020
As I survey the year ahead, I see a fanning of risks on the horizon for 2020.
The six key themes that I will be closely watching in 2020 include:
1. Household spending – renewed increases to house prices and low unemployment could push up confidence to spend. Further evidence of migration remaining higher for longer would also have ramifications for consumption.
2. Less hui, more do-ey – for all this government’s spending announcements, very little Provincial Growth Fund money has been paid out and few new infrastructure projects are underway. Will 2020 be the year of the doing? Progress is needed to stimulate demand and provide a platform for longer-term productivity improvements
3. Interest rates and finance – higher bank capital requirements will limit access to new debt. The Reserve Bank may lean against this trend in the short-run by reducing the Official Cash Rate again.
4. Wage pressures – wage growth remains low, but wage pressures could broaden due to recent high-profile settlements, widespread strike action, and further increases to the minimum wage.
5. The environment – government legislation, and business pledges to reduce the use of plastics and achieve carbon neutrality, are longer-term shifts that largely concern the supply side of the economy. But could 2020 spell the beginning of more immediate environmental-induced demand-side changes to the economy. Heightened international focus on the environment could limit demand for travel to far-flung destinations such as New Zealand and renew consumer concerns on topics such as food miles and emissions from agricultural production.
6. The globe – New Zealand’s export prices remain at record levels, despite rising international trade tensions. Tensions in the Middle East and their effects on petrol prices have grabbed recent headlines, but another concern is how trade negotiations between China and the US pan out. Our trade fortunes remain interlocked with China – they are our key source of demand for our exports and provide us with a steady stream of imported goods that help keep inflation low. The health of the Chinese economy matters.