29 Aug 2018

Businesses pessimistic but economic outlook solid

2:48 pm on 29 August 2018

Gloomy business sentiment is clouding what is an otherwise solid economic outlook, according to a leading economic think tank.

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The Institute for Economic Research's (NZIER) Quarterly Predictions point to annual growth of around 3 percent for the next five years.

"In terms of the growth outlook it is softer but it is still respectable in terms of where we see things over the next few years," NZIER principal economist Christina Leung said.

But she said there were increasing downside risks of slowing population growth, rising costs of complying with regulations and ongoing labour shortages.

"Businesses are feeling increasingly pessimistic about the economy, with deteriorating profitability a concern for many," Ms Leung said.

The past strong growth in population would still underpin activity, but the problems in the construction sector, and uncertainty about policy as well as overseas events were all negative factors, she said.

There was no need for the Reserve Bank to increase interest rates before early 2020, given the US central bank was tightening policy which was being felt around the world, Ms Leung said.

However, she reserved her judgment on whether the new business advisory council, to be led by Air New Zealand chief executive Christopher Luxon, would make a difference and lift business confidence.

"A large part will depend on what the council has to say to the government and what parts the government chooses to take on board," she said.