The Government yesterday got a useful boost to its big dream of winning a fourth term in 2017.
Economic conditions are forecast to be about the same they were at the time of the election last year.
Most National voters gave the Government’s economic management record as the main reason they voted for them.
Though National is still riding high on 47% in this week’s One News Colmar Brunton Poll it — the same as it got at last year’s election – the only thing stopping it from forming a majority Government is a decline in the polling fortunes of the Maori Party.
So the news that the current economic slowdown is likely to be only temporary will come as a huge relief to the Beehive.
The Reserve Bank forecasts are the first from the Bank to take into account the current sharp drop in dairy prices.
Even so, the Bank is forecasting growth in the March 2017 year to be 2.5% (the same as for the March 2014 year) and rising during the year to 3.1% for the March 2018 year.
That figure is also an uncanny echo of the last election.
Growth to March this year was also 2.5%.
But between now and the election the Bank is predicting the economy to slow down with most of that drop off happening right now.
That would explain the big decrease in business confidence measured in the latest ANZ Business Outlook survey which showed a big fall in business confidence last month.
Reserve Bank Governor Graeme Wheeler did however issue two caveats on his forecasts.
“The conditions that would probably be needed to create a recession in New Zealand would be something like China slowing dramatically or perhaps moving into a recession,” he said.
“That would certainly create huge problems in Australia and for ourselves.
“Or also if the El Nino impact really took hold and continued right through into the middle of next year or thereabouts.
“That could have a significant effect as well.”
And he said that even if the worst did happen the country was well positioned to deal with any recession.
“The good news is that the Official Cash Rate (OCR) has the potential if we need it to be reduced substantially,” he said.
“And the Government has one of the strongest fiscal positions of any advanced economy in the world.”
NO SIGNS OF ANY SLOWDOWN IN AUCKLAND HOUSING MARKET
And again surprisingly Mr Wheeler did not list any bursting of the Auckland housing bubble as a potential cause of a recession.
Labour’s Grant Robertson has complained that while Auckland was enjoying a boom based on the wealth effects of skyrocketing house prices, regional New Zealand and people seeking affordable housing were left out.
But the Bank’s Chief Economist, Dr John McDermott, said that unlike previous housing booms, the household sector seemed to be spending only their incomes from ages and salaries and “not out of its potential capital gains on houses.”
However Mr Wheeler warned that prices in Auckland were very high.
He said its house price to income ratio of nine out the city in a group of “a dozen” cities that were probably the most expensive in the world in terms of that the price to income ratio.
“We are watching the Auckland housing situation very carefully,” he said.
“What is required to get on top of the Auckland housing market is to address the supply shortage.”
But he said there was good news in that the number of building consents being issued in Auckland was rising.
However net migration figures were still very high and they were putting pressure on house prices.
He saw little immediate relief.
“The risk is that the housing imbalance could carryon for quite some time>”
That risk will be intensified by Bank forecasts showing that it doesn’t expect any quick rise in the core 90 day bank bill interest rate. It is saying that will stick around 2.6% from the middle of next year through 2017.
At the time of the last election it was at 3.7% so it is likely the Government will go into the 2017 election with interest rates lower than they were at the last election.
All of this adds up then to a pretty positive picture for National.
The only thing likely to trip them up between now and the election will be their own political management.