WELLINGTON (Reuters) – New Zealand’s gross domestic product is expected to have slowed 0.4% quarter-on-quarter in the three months to June, a Reuters poll showed, reinforcing the case for further stimulus from the central bank despite a sharp interest rate cut in August.
The median forecast from 12 economists polled by Reuters put annual growth at 2.0% in the June quarter, its lowest since 2013, and well below 2.5% posted in the March quarter.
The data comes on the back of a series of negative news headlines in New Zealand, with business confidence and consumer confidence at record lows, with the Pacific country expressing concern over the impact of the international trade tensions, a slowing Chinese economy and Brexit.
ANZ Bank said in a note that the downgraded growth outlook for the rest of the year and slipping inflation expectations will make the Reserve Bank of New Zealand (RBNZ) conclude that it can’t afford to be patient for too long.
“The issue is that the RBNZ needs the economy to run hot, not in the kind of spluttering fashion we expect,” said ANZ Chief Economist Sharon Zollner.
ANZ expects the Official Cash Rate (OCR) to be cut to a record low of just 0.25% by May next year.
RBNZ stunned markets last month with a steep 50 basis points interest rate cut, hoping that front-loading the stimulus would provide the jolt the domestic economy needed.
Although the bank is seen likely to keep rates on hold at the next meeting on Sept. 25, several economists expect it will cut rates in November.
A slowing global economy, the escalating Sino-U.S. trade war and warnings of recession have spurred major central banks across the world to ease monetary policy.
The U.S Federal Reserve is expected to cut interest rates on Wednesday, having made its first cut since 2008 back in July. Australia’s central bank in June and July cut interest rates to a record low of 1%.
The RBNZ won’t want to be left out of the party, Westpac Bank said in its report.
Soft dairy, log and other exports, a sluggish business sector and a deterioration in global demand have put a downside risk on prospects for growth for the remainder of 2019, it said.
“Against this backdrop, the RBNZ is likely to cut the cash rate again later this year in order to boost demand,” Westpac Chief Economist Dominick Stephens said.
The Treasury department downgraded its gross domestic product forecast to 2.1% in the year ending June 30, 2019, compared to 2.9% predicted in December, hurt by a cooling global economy and slowing domestic consumption. The Treasury forecasted GDP growth of 3.2% in fiscal 2020.
Reporting by Praveen Menon; Editing by Simon Cameron-MooreOur Standards:The Thomson Reuters Trust Principles.