Confidence shockingly weak: bank

The bank has slashed its forecast for this season's farm gate milk price to $3.70 from a $5.70 forecast three months ago. Photo / Brett Phibbs

Rising joblessness, rebuild levelling out and dairy downturn taking toll on outlook.

Downbeat economic commentary continued to flow yesterday, with Westpac saying it expects New Zealand's annual GDP growth to dip below 2 per cent, while ANZ's Truckometer is pointing to a clear slowdown in the economy.

In its latest quarterly Economic Review, Westpac said it expected annual gross domestic product growth to fall to 1.8 per cent in 2016 from 2.2 per cent this year and 3.3 per cent in 2014.

Unemployment will rise from 5.9 per cent currently to 6.5 per cent, the bank said, and wage growth will slow even further.

"It is also now apparent that the Canterbury rebuild has levelled off nine months earlier than anticipated and is no longer boosting economic growth," said Westpac chief economist Dominick Stephens. "Business and consumer confidence have already plunged."

The bank has slashed its forecast for this season's farm gate milk price to $3.70 - well below break-even levels for most farmers - from a $5.70 forecast three months ago.

"A second consecutive season of very low returns will inevitably force much more wrenching on-farm spending adjustments than a one-year downturn might have."

The bank said last month's business confidence survey was "shockingly weak", suggesting worse was yet to come, and confidence in the agriculture industry had taken the hardest knock.

"We suspect it will fall further from here - dairy farmers' cash flows will continue to tighten in coming months and anecdotes are only starting to emerge that rural land values are coming under pressure." The bank said "bright spots" still existed in the economy.

Westpac expects the Reserve Bank to cut the official cash rate to 2 per cent, from 3 per cent at present, which will place downward pressure on the New Zealand dollar.

"That should provide some relief, so we have been able to forecast a modest recovery in GDP growth from mid-2016 onwards," Stephens said.

Meanwhile, ANZ said its Truckometer heavy traffic index fell 0.3 per cent last month and has declined by 0.2 per cent in last three months versus the previous three. It has fallen in six of the past seven months. The light traffic index, which gives a six-month lead on the economy, fell 0.2 per cent in July.

"Signals from our Truckometer reflect an economy facing strengthening headwinds," said ANZ senior economist Sharon Zollner. "Until global dairy prices find a floor ... all economic forecasts remain a moving target." The Truckometer measures economic activity using real-time traffic data from around New Zealand.