Newsroom Pro's 8 things at 8: House prices falling; GDP seen weak

Surprisingly weak figures on construction spending have led economists to nudge down their GDP forecasts. Photo: Lynn Grieveson

In today's email we preview the GDP figures due out this morning, and look at the latest house price and sales volume statistics.

1. GDP growth slowing?

All eyes will be on GDP growth figures for the March quarter later this morning for signs that the December quarter's slow 0.4 percent growth was just a blip.

Economists have nudged their forecasts lower in recent weeks after surprisingly weak figures on construction spending and signs in yesterday's current account figures of a drag from weak exports. Most forecasts see growth of around 0.5 percent to 0.8 percent for the quarter, which would see annual growth of around 2.5 percent to 2.8 percent.

This would be a tad weaker than the three percent-plus that most have been expecting over the last year and which is forecast for the next couple of years. A quarterly result in the 0.5 percent to 0.8 percent range would also be less than the 0.9 percent forecast by the Reserve Bank.

"Two quarters of sub-trend growth would be very surprising – growth of less than one percent over six months does not fit with robust business confidence surveys," said ASB Economist Nick Tuffley, who is forecasting 0.5 percent growth for the quarter.

"The NZ economy is supposed to be humming on the back of strong population growth, improving export incomes and low interest rates."

We'll have coverage of the GDP result and reaction in tomorrow's email and on the site.

2. A wider deficit

The last component of the GDP figures is the current account deficit, which was released yesterday by Statistics New Zealand.

The figures showed a quarterly deficit of $2.8 billion or 3.1 percent of GDP, which was $1.1 billion wider than the December quarter deficit of 2.8 percent of GDP and the biggest quarterly deficit since the December quarter of 2008.

It was also above economists' forecasts for a quarterly deficit of around 2.8 percent of GDP.

The goods deficit widened by $404 million to $1.2 billion in the quarter with weak exports of dairy and manufacturing a factor, while the services surplus also narrowed by $180 million to $1 billion as tourism and export education growth has stalled somewhat early in 2017.

However, New Zealand's net international liability position continued to improve, falling to 58.5 percent in the quarter from 60.4 percent as New Zealand's investments overseas increased in value because of strong stock markets. The New Zealand Super Fund and KiwiSaver funds invest heavily overseas.

But the worsening current account deficit does remind some of the 'borrow and spend' behaviour seen at the tail end of the 2002 to 2008 housing boom.

"While it was encouraging that external balance sheet metrics improved in the quarter as a share of GDP, in some ways today’s figures are still a reminder of the bad old 'borrow and spend' days," said ANZ Economist Phil Borkin.

"The economy needs to lift its savings performance and policy settings need to change to encourage it."

We'll get plenty of advice from the OECD later today on how we could change those settings.

3. House prices falling

The Real Estate Institute published its price and volume figures for May yesterday, which showed prices and volumes falling in Auckland and New Zealand overall.

The REINZ's House Price Index measure, which is a series it created with the Reserve Bank to strip out the skewing of medians by more or less sales in higher or lower price brackets, shows Auckland prices fell 0.7 percent in May from April, while nationwide prices fell 0.4 percent.

Prices excluding Auckland still rose 0.2 percent for the month and were up 11.1 percent from a year ago.

Sales volumes nationwide were down 18.4 percent in May from a year ago and down 27.5 percent in Auckland.

The Reserve Bank's 40 percent deposit requirement for rental property investors has definitely had an impact over the last six to nine months, along with slight rises in mortgage rates and a reduced appetite for lending by the major banks, who face funding and capital constraints.

4. Talking and testing vs action

Newsroom's Lynn Grieveson covered the joint release yesterday by DairyNZ, Fonterra and the Government of a plan labeled "Dairy Action for Climate Change."

As Lynn reported for Newsroom Pro, the plan talked a lot about more talk and testing and hopes for scientific research, but didn't include any action around pollution pricing or any suggestion of inclusion in New Zealand's emissions trading regime.

The Opposition and Green groups labeled the plan as 'all talk and no trousers.

5. A non apology of an apology

Newsroom's Foreign Affairs Editor Sam Sachdeva has covered yesterday's announcement of the resumption of diplomatic ties between Israel and New Zealand.

There was plenty of careful language from Prime Minister Bill English when he was questioned on the issue in the Cook Island yesterday.

English said New Zealand stood by the contents of the resolution and had not apologised to Israel about the decision to co-sponsor it.

“The resolution expressed longstanding New Zealand and international policy and we stand by those positions - we did express regret about the fact that it’s disrupted our relationship with Israel," he said.

Meanwhile, the Opposition questioned whether New Zealand had abandoned its principles.

See Sam's full report here on Newsroom Pro.

6. Master planning required

The debate around housing shortages is raging on as we head to the election, particularly around how more medium to high density housing can be built at scale and speed and quality.

Victoria University's Dr Morten Gjerde makes a useful contribution to the debate over here in this piece on Newsroom.

He talks about the benefits of master planning and about the roles of Urban Development Authorities, which we'll hear much more about in the months ahead from both sides of politics.

7. Coming up...

The OECD is scheduled to release its annual survey on the New Zealand economy at 11.30 am today. It said in advance it would include a chapter on New Zealand's poor productivity performance.

Statistics New Zealand is scheduled to release March quarter GDP figures at 10.45 am today.

8. One fun thing

A cartoon of the day from Jim Morin on Trump's extraordinary cabinet meeting this week, where they all said on camera before the meeting how wonderful Trump was: "The ring-kissing is just the beginning."