NZ: Policy environment is in a state of flux - HSBC

The NZ’s policy environment is in a state of flux, with the uncertain election results and a new Governor set to be appointed at the RBNZ within the next six months.

Key Quotes

“Fiscal policy looks set to become more expansionary. The RBNZ is also set to undergo a period of transition, with Governor Graeme Wheeler's term ending on 26 September. The current Deputy Governor, Grant Spencer, has taken over as Acting Governor between 27 September 2017 and 26 March 2018, when a new Governor will take over for an appointed term of five years.”

“Risks

Construction activity may be slower to ramp up than we have assumed, if capacity constraints result in projects not going ahead (rather than pushing up costs and wages within the sector to draw in additional resources). Data on building work over H1 2017 suggests that this risk is growing; activity fell by 3.3% in Q1 and a further 0.5% in Q2. This data can be volatile, though, and given the large pipeline of infrastructure and home building needed, we are still anticipating strong growth in building work.

Another risk to the forecasts is the flow of migration. We have assumed that migration slows from 2018, but only gradually. If policies were changed to cut migration more aggressively, this could result in weaker growth, although it could also generate more inflation if the result were a tighter labour market.”