Economist says mortgage rate decline might stimulate the market
The New Zealand economy is under pressure, according to ASB Bank’s latest economic forecast.
The latest ASB Quarterly Economic Report indicated that New Zealand’s economy might fail to rebound significantly over the next year – with growth to lift only slightly.
It pointed out that the country’s economic growth has slowed since mid-2018 and is likely to remain subdued for the remainder of the year, although lower interest rates may support a recovery in economic demand next year.
“Business confidence has remained persistently weak over the past 18 months, with key measures of business activity pointing to economic conditions deteriorating in recent months,” said Nick Tuffley, chief economist at ASB.
“A key puzzle over the recent economic cycle has been subdued price inflation relative to capacity measures, in particular relatively subdued wage growth despite the steady decline in the unemployment rate.”
Read more: All five major banks cut their mortgage rates
On a lighter note, the report indicated that monetary policy is helping to shore up growth and early signs of response in the housing market.
As the Reserve Bank openly talks about the possibility of negative interest rates, Tuffley commented that now is the right time for the government to focus on quality spending and investment plans as contingencies.
“On a more positive note, recent declines in mortgage rates are likely to stimulate the housing market in coming months, and New Zealand commodity exports continue to perform strongly, for the most part,” Tuffley said.
“The Government could line up targeted welfare spending/tax cuts aimed at giving the economy a cyclical boost. The country is also crying out for infrastructure and policies that would jump-start productivity. With Government debt low and its borrowing costs even lower, the Government is well-placed to lend a hand, if needed.”
