Liam Dann: Why both parties face a fiscal hole

A number of construction cranes are at work around the Auckland CBD. Photo taken from the Silo Park gantry. New Zealand Herald Photograph by Dean Purcell.

The last big economic stats before the election - GDP and migration - are not likely to shift many voters but they do offer a warning for the next Government.

All the major parties are basing their spending promises on treasury forecasts that may prove overly optimistic.

GDP for the June quarter, came in bang on market expectations at 0.8 per cent - 2.5 per cent year on year.

That's a solid enough number but it is a long way from the 3.7 per cent Treasury has forecast for the year to June 2019 and even the 3.2 per cent target for the year to June 2018.

In fact, few economists believe we'll get there.

Migration appears, finally, to have peaked. Monthly net migration fell for a second month in a row down to 5,490 in August from 5,800 in July.

Annual net migration fell from 72,400 in the year to July to 72,100 for the year to August - still high by historic standards but enough for economists to suggest the trend has peaked.

Much of the strong GDP growth forecast for the next two years seems predicated on continued high levels of immigration and a construction boom as house building peaks in Auckland.

But construction underperformed expectations for the second quarter in a row.

Construction numbers "continued to surprise on the downside," said ASB economists, noting the figures had also included the Kaikoura infrastructure rebuild.

Planning rules may have finally opened up for developers but with houses Auckland house prices now falling and building costs rising, there are serious questions about how enthusiastic private developers are going to be to take on new projects.

"It is clear the economy is grappling with some meaningful headwinds, which look unlikely to dissipate," wrote ANZ economists.

Westpac chief economist Michael Gordon agreed: "A 0.8 per cent quarterly rise is not that impressive. We recently revised our September quarter growth forecast down to 0.7 per cent, and over the next year as a whole we expect GDP growth to fall significantly short of Treasury and RBNZ forecasts."

If net migration continues to ease and GDP underperforms then whoever forms the new Government will face challenges to meet all their election promises.