Economic outlook Reserve Bank of New Zealand February 2019 - Reserve Bank of ...
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Economic outlook Reserve Bank of New Zealand February 2019
The Monetary Policy Statement at a glance
• The Reserve Bank’s
Monetary Policy
Statement (MPS) provides
a quarterly picture of the
New Zealand economy,
how it is performing and
where we think it is
heading next.
• It sets out how the Bank
has been implementing
monetary policy and how it
plans to do so in the next
five years.
2Overview
Contents
• Fiscal and monetary stimulus to support growth
• Employment is near its maximum sustainable level
• Underlying inflation expected to rise to 2 percent, as
capacity pressure increases
• OCR expected to remain low for a considerable time
• Downside global growth risk balanced by upside risk to
cost pressure
3Key changes in the February Statement Contents In the last three months… • Tail winds from the global economy are fading, and risks are increasing • Weaker domestic Q3 GDP growth outturn • Labour market data volatile, but show continued tightening • Lower petrol prices to weigh on near-term headline inflation, but domestic price pressure is building • OCR still expected to remain low for a considerable time 4
Global growth to slow
Trading partner GDP growth
(annual)
5
Source: Haver Analytics, RBNZ estimates.Global inflation low and stable…
Trading-partner CPI inflation
(annual)
6
Source: Haver Analytics, RBNZ estimates.…as capacity is being absorbed
OECD unemployment rate and wage inflation
(annual)
7
Source: OECD.Global policy rate outlook more uncertain
NZ and foreign interest rate differential
8
Source: Haver Analytics, RBNZ estimates. Note: Foreign interest rate attributes 80 percent to the US and 20 percent to Australia.Policy uncertainty elevated…
Global uncertainty indices
9
Source: Bloomberg. Note: These measures are based on the frequency of news coverage about policy-related economic uncertainty.…contributing to tighter financial conditions
US financial conditions indices
10
Source: Bloomberg, Chicago Fed, Goldman Sachs, St Louis Fed.NZ dollar and terms of trade broadly
consistent
NZD TWI and terms of trade
11
Source: Stats NZ, RBNZ estimates.Domestic conditions supported by lower
fixed-term rates
Mortgage interest rates
12
Source: interest.co.nz. Note: The rate for each term is the average of the latest rate on offer from ANZ, ASB, BNZ, and Westpac.PLT net inflows to moderate
Permanent and long-term working-age arrivals/departures
(annual)
13
Source: Stats NZ, RBNZ estimates. Note: New outcomes-based migration data are yet to be incorporated into our projections,
but indicate that the migration contribution to supply and demand may have been weaker in recent years.House price inflation to be subdued
House price inflation
(annual)
14
Source: CoreLogic NZ, RBNZ estimates.Residential investment supported by
KiwiBuild from late-2019
Residential investment
(as a share of potential output)
15
Source: Stats NZ, RBNZ estimates.Construction sector capacity constrained
Dwelling consents (monthly) and QSBO difficulty of finding labour
16
Source: Stats NZ, RBNZ estimates.Employment near its maximum sustainable
level
Employment as a share of the working-age population
17
Source: Stats NZ, RBNZ estimates.Economy operating near its potential…
Output gap and mean of indicator suite
(share of potential)
18
Source: RBNZ estimates. Note: Patch shows the range of the suite of indicators.…but businesses’ reported activity poses
downside risk
QSBO domestic trading activity (past 3 months)
and GDP growth (annual)
19
Source: Stats NZ, NZIER.Underlying inflation approaching
2 percent
Core and headline inflation
(annual)
20
Source: Stats NZ, RBNZ estimates.Petrol price volatility to weigh on inflation
Fuel, tradables and tradables ex-fuel inflation
(annual)
21
Source: Stats NZ, RBNZ estimates.OCR on hold for considerable period
Official Cash Rate
22
Source: RBNZ estimates.Inflation expectations well anchored
Inflation expectation curves
23
Horizon (years)
Source: RBNZ estimates.Key risks in the February Statement
OCR
Wage and cost Global growth and
pass-through trade tensions
Price-setting
Weakness in growth
becomes more
persists
forward looking
24Reserve Bank of New Zealand Act Review
• The joint Treasury and Reserve Bank team undertaking Phase 2 of the
Government’s Review of the Reserve Bank Act has released its first
consultation paper https://treasury.govt.nz/news-and-
events/reviewsconsultation/reviewing-reserve-bank-act/phase-2-
reserve-bank-actreview
• Phase 2 of the Review focuses on the Reserve Bank’s financial policy
framework.
• Phase 1 of the Review focused on improving the Reserve Bank’s
monetary policy framework, and comes into effect on 1 April 2019.
• For general enquiries about the Reserve Bank of New Zealand Act
Review, please email rbnzactreview@treasury.govt.nz
25Proposed changes to bank capital requirements
• The Reserve Bank is currently consulting
on a proposal to raise the amount of
capital that banks must hold.
• This would make bank failures less likely
and ensure bank shareholders absorb a
greater share of losses if their bank fails.
• Reserve Bank website has the
consultation papers and a non-technical
summary.
• Feedback closes 3 May 2019, and final
decisions are expected in the third
quarter of 2019. 26Summary of macro-economic indicators
Post-2000
Current*
average
GDP growth (%) 2.6 2.9
CPI inflation (%) 1.9 2.2
Employment growth (%) ** 1.3 1.8
Unemployment rate (%) 4.3 5.0
Current account balance (% GDP) -3.6 -3.8
*GDP and current account balance data ends at September 2018. CPI, employment and
unemployment end December 2018.
** Based on filled jobs in the Quarterly Employment Survey 27
Source: Stats NZ, RBNZ estimates.Thank you
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