Australia and New Zealand: More expansionary fiscal stance supports outlook

Australia and New Zealand both posted solid economic growth in 2017, estimated at 2.8 per cent and 2.5 per cent, respectively. In 2018, GDP growth is expected to reach 3 per cent in Australia and 2.9 per cent in New Zealand, supported by a more expansionary fiscal stance and solid consumer spending in both countries. While investment in Australia will be driven by a booming housing market, the housing cycle in New Zealand has started to turn, after house prices increased by more than 20 per cent compared to early 2015. Residential construction activity in New Zealand has slowed, and is expected to remain soft in 2018–2019.

New Zealand Fiscal Strategy Report
New Zealand Fiscal Strategy Report

As in Canada, both Australia and New Zealand have introduced several measures to restrict the role of speculative non-resident investors in the housing market. Nevertheless, house prices in Australia have continued to rise steadily and residential investment is projected to remain strong. The Reserve Bank of Australia has warned that some borrowers, especially those with lower income, may struggle to meet mortgage payments when interest rates rise from their prevailing low rates. While adjustment in the housing market may unfold gradually, there is a risk that Australia will experience an abrupt turn in the housing cycle, driving a sharp slowdown in economic growth.