5 Aug 2014

Treasury warns of slowing economy

8:06 am on 5 August 2014

The Treasury is warning that the economy's momentum may slow further next year.

In its latest monthly economic indicators update, the Government's forecaster says data suggests the pace of growth eased in the three months to June due to waning confidence, weaker exports and slowing housing activity.

Inflation is expected to remain in the lower half of the Reserve Bank's inflation target band of 1 to 3 percent this year, though the Treasury says inflation pressures are building because the recent period of strong growth has reduced firms' spare productive capacity.

It notes that activity indicates the economy will continue to expand at a solid pace for the rest of 2014. However, it warns export prices and income growth may not be as strong as expected, especially with recent falls in dairy prices.

New Zealand had robust 3.3 percent economic growth in the year to the March quarter - far higher than in most advanced economies. Economic growth figures for the June quarter will not be formally unveiled until the middle of September, but the Treasury says new information indicates that the growth rate will be turn out to have been lower when it is finally revealed.

Dairy cooperative Fonterra downgraded its forecast payout to its 10,500 farmer-owners last week, which analysts estimate could reduce farm incomes by about $4 billion next year.

The Treasury will release the pre-election economic and fiscal update later in August.