New Zealand

New Zealand’s expansion lost momentum in 2017-18, as some key drivers started to weaken. Despite the long expansion, inflation remains weak, reflecting imported disinflation as well as strong net inward migration, which has boosted labor supply. Macrofinancial vulnerabilities have increased with a housing boom but have been contained through macroprudential policy intervention. After recent declines, growth picked up in early 2019 and is expected to remain close to trend in 2019-20 on the back of increased policy support, despite external headwinds. Inflation should pick up gradually. Downside risks to the growth outlook have increased, reflecting: higher global risks; prospects for a weaker fiscal impulse given recent implementation lags; and the housing market cooling morphing into an actual downturn.