Editorial: Party time as recovering housing market boosts economic outlook

The fact is Kiwis tend to open their wallets wider when the value of their house is rising. Photo / File

EDITORIAL:

All of a sudden the prospects for both the domestic and the US economies appear much brighter.

Dangerous to say at the best of times but heading into Christmas there's good reason to be more upbeat than perhaps a few months ago.

Business and investors gained clarity over Brexit as Boris Johnson swept to election victory in the UK. Now there's just the difficult task of actually getting Brexit done and establishing a new trade relationship with Europe.

At the same time there was progress on another long-running saga, with the US settling on final terms for a partial trade deal with China.

Earlier last week the Federal Reserve held its rates steady and signalled hikes remain unlikely, fuelling bets that the US economy will be strong enough to continue its solid expansion.

Here at home the Auckland housing market is roaring back to life due to a combination of lower interest rates, continued migration inflows and the ditching of the Capital Gains Tax proposal earlier in the year.

Meanwhile, recent data on retail sales, inflation, exports and manufacturing all suggests the local economy has turned the corner.

Even New Zealand farmer confidence has improved, buoyed by a stronger outlook for commodity prices and a surge in demand for New Zealand red meat as a result of the pork supply shortfall created by African Swine fever.

The remarkable thing is that it wasn't long ago the air was filled with doom and gloom, prompting the Herald to run its Building Confidence series in October to find out why firms were so pessimistic.

Signs of a turnaround came in late October with the ANZ Business Outlook showing less of a bleak picture.

Headline confidence actually jumped in the October survey, suggesting optimism was indeed creeping back into the general business outlook.

Last week the Finance Minister delivered a half-year economic and fiscal update which included a relatively hefty infrastructure spending programme, with an additional $12 billion of new spending promised.

Grant Robertson had been facing growing calls to take advantage of low interest rates to address the infrastructure shortfall and stimulate the economy.

The economic indicators are still mixed, as independent economic consultancy NZIER highlighted in a recent analyst note.

However, on balance there was little cause for concern that a recession will strike New Zealand in 2020.

"We looked at a number of current indicators – timing, business confidence and activity, unemployment and the yield curve, and found that on balance New Zealand's economy should continue to grow throughout 2020," Christina Leung, NZIER's principal economist, said.

In New Zealand, the economy has been growing since 2010 – marking eight and a half years of growth.

This week's GDP figure should show that trend continuing.

Bank economists are picking GDP for the third quarter to come in at between 0.5 and 0.7 when it is released on Thursday morning (See B1 for our preview story).

The biggest driver of where to from here will be the housing market.

The fact is Kiwis tend to open their wallets wider when the value of their house is rising.

So it could well be a bountiful Christmas for retailers.