AMP is still forecasting China to grow 7.4 per cent this year, but August's contraction in industrial production was disconcerting, he said. "To put a monthly decline into perspective, there were only three such months during the global financial crisis and only one other since then."
But to the extent it is a spillover from falling property prices, AMP believes the Chinese authorities have the tools to avert a sharper downturn.
Graham expects the US Federal Reserve to start tightening monetary conditions from the middle of next year while the European Central Bank and Bank of Japan continue easing for some time. That divergence in monetary policy should lift the US dollar and by implication push the New Zealand dollar lower.
Graham expects the NZ economy to grow 3.7 per cent this year on an annual average basis, slowing to 2.9 per cent next year. Growth will be underpinned by continued jobs growth, which will support household spending even if wage growth remains subdued, relatively strong business confidence supporting investment and continued strong residential construction.
But "that assumes some recovery in dairy prices which, if not forthcoming, would result in our lowering our forecasts, all else being equal".
AMP's head of investment strategy, Keith Poore, said the fall in dairy prices should be seen in the context of a broader slip in global commodity prices, including oil and grains.
A key feature of the investment landscape at the moment was the lack of inflation wherever you looked, Poore said.
Since the GFC there has been a lot of debt to work off and a lot of spare capacity to take up.
Even where output gaps had closed we had not seen the rates of wage inflation we used to, suggesting globalisation and technological advances had limited wage gains, Poore said.
"Low inflation does not equate to low risk, because it raises the risk of excess leverage, asset price bubbles and the eventual messy unwind."
