Economic Weekly: NZ heads to the polls

The NZ general election is now fast approaching, taking place this Saturday (17th October), but the polls are already open. New Zealanders have been encouraged to vote early this year to avoid large queues and are reportedly casting advance votes in record numbers.  Polls suggest a centre-left government will be returned, although nothing is certain in politics.  In terms of market reaction, its more about getting a clear result rather than who specifically wins – a clear election mandate would provide more surety to markets and the economy, whereas an inconclusive result could see a period of pronounced volatility.   Between the two major parties, there are only modest differences in terms of policy - with starker differences between potential support parties (Greens and Act).  Both major parties have demonstrated the ability and commitment to be competent fiscal managers.  For more background information on NZ’s election, see our note by Mark Smith here.

Meanwhile, NZ economic data continues to surprise on the upside, leading us to further revise our GDP forecasts (higher) and unemployment forecasts (lower).   The NZ housing market has barely skipped a beat this year, shrugging off the global pandemic.  REINZ house sales data for September is likely to be released during the second half of the week and is expected to confirm accelerating housing market momentum.

StatsNZ recently updated its population estimates to account for the census data, and as a result the population is larger than previously reported.  The implications of this revision are that housing shortages remain acute (see chart of the week below) and widespread across NZ.  Lower mortgage rates are likely just adding fuel to the fire.  Despite the NZ economy performing stronger than expected, and the housing market heating up, the RBNZ appears unlikely to back away from their policy stance anytime soon, with the RBNZ Chief Economist commenting last week that “we’d rather do too much too soon, than too little too late”.