FXStreet (Delhi) – Research Team at Goldman Sachs, scripts down the outlook of NZ economy for the year 2016. Key Quotes “Much easier financial conditions may contain downside risks In concert with a material depreciation in the NZD over the past year, the RBNZ’s 2015 easing cycle has delivered a pronounced easing in financial conditions – which we assess to be at around their easiest settings in decades. In turn, there are now encouraging signs that this policy shift has gained traction across key surveys, and the outlook for housing construction and tourism looks quite upbeat. Most recently, our current activity indicator suggests the earlier deceleration in GDP growth may be stabilizing at approximately a +2.5% yoy pace.” … but we still believe growth is likely to disappoint Even so, the jury is still out on the apparent stabilization in sequential momentum and we remain cautious on NZ’s growth outlook overall. To be clear, NZ’s risk profile is now far more balanced. However, we still think it more likely that growth will undershoot broader expectations given the lagged impact of lower dairy prices, an intensifying El Nino weather event, and diminishing tailwinds from both net migration and the post-earthquake rebuild. Given these challenges, we see little prospect of a sustained reacceleration in growth for several years – with our forecast +2.2%pa expansion over 2015-17 at the lower end of consensus expectations. We expect growth of +2.4% in 2018 and introduce a forecast of +2.6% for 2019.” Base case: Benign inflation, steady rates. But downside risks From a policy perspective, given our weak growth outlook, we do have sympathy with the view that the RBNZ will deliver materially more than the -25bp we are currently forecasting this cycle. Certainly there is still plenty of capacity to act and an extremely benign inflation outlook is likely to keep pressure on the central bank to use some of it. Over the coming months, key swing factors will be any renewed strength in the NZD, deeper slowdown in China, and/or a severe drought. On balance, however, having put a floor on 2015’s deceleration, we think an extended period of subdued growth and stable interest rates is the most likely scenario. This view is founded on an expectation that the NZD continues to weaken, China’s deceleration is a bumpy but ultimately benign one, and that Governor Wheeler will continue to signal patience in returning inflation to target as risks to financial stability remain in focus.” For more information, read our latest forex news.