Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

NZIER September Quarterly Predictions

The New Zealand Institute of Economic Research (NZIER) is releasing the September Quarterly Predictions – a regular set of forecasts and commentary on the New Zealand economy.
The detail is in the backgrounder on the next page, but in summary:

 A combination of weak confidence and slowing consumer demand will see economic growth slow to 2.7% in 2000/01. Despite this “flat patch”, the economy will experience a substantial rebound in 2001, as a strong export performance combines with recovering confidence and a catch-up in deferred employment and investment. Growth rises to 3.9% in 2001/02.

 Risks are still on the downside. Weak business confidence, vulnerable household balance sheets, rising inflation and the persistent current account deficit could all undermine growth over the next few years. The current account deficit presents the most overarching risk, with the potential to induce a sharper contraction in domestic activity if it continues to put downward pressure on the exchange rate and upward pressure on interest rates.

“Flat patch” to dominate 2000
Developments in the last three months have been broadly in line with our June quarter forecasts. Most indicators point to a softening in growth since the start of the year, with March GDP figures showing key components such as private consumption, business investment and exports all slightly weaker than anticipated. Other activity indicators for the June and September quarters suggest domestic demand has remained subdued despite a continued pick up in export growth.

Our forecasts have remained much the same as last quarter. The slump in confidence will continue to dampen activity in the short term. Businesses will tend to postpone new employment and investment initiatives and households will cut back on new spending in response to slower employment growth and their already precarious balance sheet positions. These developments will be offset to some extent by a stronger external performance – export growth will continue to gather momentum as import demand weakens. However, overall GDP growth will slow from 4.8% in 1999/2000 to 2.7% in 2000/01.


Economic growth
Annual average percent change

Source: Statistics New Zealand, NZIER forecasts

Despite the “flat patch” this year, the economy will experience a substantial rebound in 2001. The current upswing in export growth will continue for some time yet. World demand is in a growth phase at the moment and will remain strong over the next five years. Exports will also benefit in the short term from a very low exchange rate and the ongoing expansion of agricultural production.
The flow on effects of this positive export situation will filter through into the broader economy over the next two years. At the same time, some of the concerns surrounding government policy changes should ease, lifting confidence out of its current slump. This will act as an important catalyst for growth, lifting employment, investment and eventually consumption spending. Overall, the rebound will see growth rise to 3.9% in 2001/02.

From 2001 on the economy will move into a more conventional cycle. Export growth will slow as the upswing in agricultural production ends and the exchange rate goes through a moderate appreciation. The slowdown will be accompanied by weaker growth in investment spending. Although consumers will maintain reasonably steady spending growth, this will be offset by stronger import growth. Economic growth will slow to 2.8% in 2002/03.

The risks are still heavily stacked on the downside. A sustained period of business pessimism, if it occurred, could see firms remaining reluctant to increase employment and investment, with obvious negative consequences for domestic demand.

Likewise, the weakness of household’s financial positions could easily undermine growth. High debt levels, weak asset growth and a persistently low savings rate have put households in a delicate financial position. A general switch towards “belt-tightening” could see consumption spending slow more dramatically in the short term.

Inflation is another key downside risk. Rising oil prices and the lower dollar will generate substantial upward price pressures over the next year. Despite indicating that it will “look through” any short term burst of inflation, the Reserve Bank may find itself battling against stronger generalised inflation over the medium term. In particular, the new Employment Relations Act – due to come into place in October – has the potential to further fuel inflation through stronger wage pressures. Attempts to rein in any resulting inflation will tend to result in higher interest rates and slower domestic demand.

However, the most pervasive and systemic risk still concerns New Zealand’s persistent current account deficit. Both directly and indirectly, the deficit affects the exchange rate, interest rates, inflation, consumption, investment and confidence. It now stands at 8.2% of GDP and has still not shown any convincing signs of turning around, despite recent falls in the exchange rate. Although the lower New Zealand dollar has boosted our external income it’s had little impact on our expenditure.
An improved export performance is essential for growth in the broader economy and rescuing the current account balance. However, an improved savings performance is the key over the medium term. Only by lifting national savings can we prevent current account problems from recurring and put growth on a sounder footing.
Yet savings behaviour is notoriously difficult to change. Particular attention needs to be given to ensuring that any policy changes aimed at increasing savings do not simply result in one form of saving being substituted for another.

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

Scoop 3.0: How You Can Help Scoop’s Evolution

We have big plans for 2018 as we look to expand our public interest journalism coverage, upgrade our publishing infrastructure and offer even more valuable business tools to commercial users of Scoop. More>>


Statistics: Butter At Record $5.67/Block; High Vegetable Prices

Rising dairy prices have pushed food prices up 2.7 percent in the year to October 2017, Stats NZ said today. This followed a 3.0 percent increase in the year to September 2017. More>>

ALSO:

Science: New Research Finds Herbicides Cause Antibiotic Resistance

New University of Canterbury research confirms that the active ingredients of the commonly used herbicides, RoundUp, Kamba and 2,4-D (glyphosate, dicamba and 2,4-D, respectively), each alone cause antibiotic resistance at concentrations well below label application rates. More>>

ALSO:

CO2 And Water: Fonterra's Environment Plans

Federated Farmers support Fonterra’s bold push to get to zero emissions of CO2 on the manufacturing side of the Co-operative, both in New Zealand and across its global network. More>>

ALSO:

Fisheries: Decision To Delay Monitoring ‘Fatally Flawed’

Conservation group representatives say a decision by the new Minister of Fisheries, Stuart Nash, to delay implementation of camera monitoring of fishing efforts in New Zealand is ‘fatally flawed’. More>>

ALSO:

Kaikōura Quakes: One Year On

State Highway One and the railway were blocked by damage and slips and the Inland Road suffered significant damage. Farms, homes and businesses suffered building and land damage. Power and internet went down, drinking water systems, sewage systems and local roads were all badly affected... More>>

ALSO: