Our cautious near-term outlook for New Zealand's consumer and retail sector remainsunchanged. Weakening economic growth and high household debt levels will negatively affect privateconsumption and spending over the coming year. Nonetheless, positive labour dynamics, consistently risingincomes and increasing tourist arrivals will support moderate sales growth over the medium term.
New Zealand's real GDP growth (in expenditure terms) slowed significantly to 2.0% in Q117 from adownward revised figure of 2.8% y-o-y in Q416. Our Country Risk team believes that weakness inconstruction activity due to the cooling housing market and the soft services sector will outweigh thesupport provided by the improving dairy sector. We are downgrading our 2017 and 2018 real GDP growthforecast to 2.6% and 2.4%, respectively (from 3.1% and 2.6% previously and a downward revised figure of3.6% in 2016).