Reserve Bank remains bullish about economic prospects

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Today's Quarterly Monetary Policy Statement from the Reserve Bank is a bullish one, with GDP growth now tipped to hit 3.8% during 2018 before easing off to 2.6% in late 2020. These are both up slightly from Treasury's August PREFU.

The main change from PREFU is that economic growth is expected to peak earlier - in June 2018 versus June 2019, and while it's projected to ease off to 2.8% by June 2020, it's still expected to slightly better than the easing forecast in PREFU.

That being said we're talking a difference of 0.1 percentage points between the two forecasts, so it's not a major difference. The Reserve Bank is also limited in its ability to calculate any potential effects from the new Labour-led Government's policies given that other than the coalition and confidence and supply agreements, we're yet to see fully costed policies.

The drop in the exchange rate with stable commodity prices are expected to help our exporters, while any drop off in construction and housing is forecast to be offset by the OCR staying low and not being forecast to rise until June 2019, as well as the Government's increased fiscal stimulus - basically all the extra spending the Labour-led Government is indicating it will undertake.

There's good news for home buyers with house price inflation expected to remain low, and while there may be some upswing to inflation, it's expected to headline at around 2%.

Still, it's good news for the economy, and should give Grant Robertson a little more fiscal headroom to accommodate the various policy commitments made to Labour's support partners.