NZ: Slowdown in construction activity poses downside risks to GDP forecasts - Westpac

New Zealand is wrestling with a large and growing shortage of houses, with the shortfall centred squarely on Auckland, but strong headwinds in the construction sector mean that building levels are likely to rise only gradually, according to analysts at Westpac.

Key Quotes

“Rising construction costs, limited capacity and a tightening in credit conditions appear to be putting a brake on building activity.”

“This will challenge the strength of GDP growth over the coming year, and reinforces the case for the OCR staying on hold for an extended period.”

“The RBNZ had forecast 2.6% annual growth in GDP for Q2 and it was today confirmed at 2.5%.”

“A 2.5% GDP growth rate may appear solid enough, but adjusting for record population growth it leaves an unimpressive 1% per capita growth rate.”

“We are less bullish on the growth outlook than is the RBNZ (or Treasury). If we are correct, then the eventual downgrades to the RBNZ’s growth and OCR forecasts will cause markets to reprice swap rates lower, in turn weighing on the NZD.”