Population 4.463 million
GDP 166.923 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
0.9 |
0.5 |
2.1 |
2.9 |
|
Inflation (yearly average) (%)
|
2.3 |
4 |
1.1 |
1.6 |
|
Budget balance (% GDP)
|
-3.3 |
-9.2 |
-5.4 |
-1.9 |
|
Current account balance (% GDP)
|
-3.6 |
-4.2 |
-5.4 |
-6.3 |
|
Public debt (% GDP)
|
28.4 |
36.2 |
37.4 |
35.1 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Proximity to emerging Asia and Australia
- Important tourist attraction and agricultural sector
- Contained public debt
- Solid banking system
- Dynamic demographics
WEAKNESSES
- Small economy and dependence on foreign investments
- Significant household and corporate debt
- Fiscal policy constrained by financing the reconstruction of the Christchurch region
- Shortage of skilled labour
Risk assessment
Growth to stabilise in 2013
Growth benefited from a favourable base effect in 2012, rebounding on the back of renewed household consumption and investment. The settlement of insurance claims (2011 earthquake) and the complete halt in earth tremors should allow reconstruction of the Canterbury region to gain momentum ahead in 2013. Investment growth along with household spending is likely, therefore, to be a major contributor to growth. Exports are expected to rebuild slightly and imports, while stabilising, will continue to grow more rapidly. Therefore, the trade balance will still contribute negatively to activity this year.
The reconstruction of the Canterbury region will be the main driver of growth
Household consumption will remain buoyant in 2013 but despite higher spending, will be constrained by the erosion of disposable income, a depressed labour market with unemployment remaining above the New Zealand norm and still high debt levels. Household deleveraging undergone since 2008 has led to debt being reduced to 141% of disposable income. Consumption will also be limited by the rebuilding of savings, which were negative at the onset of the crisis and are now at 1% of disposable income. Housing reconstruction in the Canterbury region is likely to represent over 60% of the total bill estimated at NZ$20 billion (about 10% of GDP) over five to seven years. Residential investment is therefore expected to rebound very strongly this year. This performance could however conceal the difficulties the sector is undergoing in the rest of the country and in the large towns in particular where the lack of housing, together with flows of migrants, is pushing up house prices: the median price is five times higher than median household income. Nevertheless, low interest rates are expected to support the growth in mortgage lending. Corporate productive investment is likely to remain steady.
The reconstruction costs will deepen the government budget deficit without, however, undermining the objective of reducing public debt.
Exporting companies weakened by high exchange rate and high volatility
Imports will remain lively due to the purchase abroad of goods intended to meet domestic demand (reconstruction), while exports will rise again thanks to sustained high prices for milk and livestock and growing demand from emerging Asia (32% of exports) and Australia (23%). Wool exports are expected to suffer from a slowdown in orders from the textile sector and exports of services and tourism in particular will continue to be hit by the high parity of the New Zealand dollar. The exchange rate has been trending upwards for three years and its volatility since mid-2011 affects the agricultural raw materials sector when US$ export earnings are converted into appreciated NZ$. Milk and livestock prices are expected to remain high, benefiting from the increase in world population, the growth of middle classes in emerging countries and low stock levels due to drought in the United States. However, the volatility of wool prices will hinder the implementation of long-term strategies amongst farmers.
Increase in bankruptcies
Reconstruction of the Christchurch region will boost activity in the building and public works sector and associated segments, such as architect’s practices, construction materials, timber, etc., offsetting the drop in activity in work commissioned by local authorities. Intense competition between suppliers is likely to drive down prices and squeeze margins. Exporters of manufactured goods and services linked to tourism are suffering from the high exchange rate and, for the former, from higher input costs, which cannot be fully offset by the strength of the currency. In the event of sustained volatility of the New Zealand dollar, small firms will be weakened as they generally lack the expertise to cover themselves against this risk. Company bankruptcies increased by 42% over the first 9 months of 2012, compared to the same period in 2011.
