Gordon Campbell | Parliament TV | Parliament Today | News Video | Crime | Employers | Housing | Immigration | Legal | Local Govt. | Maori | Welfare | Unions | Youth | Search

 


IMF Concludes Consultation with New Zealand, Releases Report

IMF Executive Board Concludes 2013 Article IV Consultation with New Zealand

Public Information Notice (PIN) No. 13/51

May 14, 2013

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2013 Article IV Consultation with New Zealand is also available.

On May 13, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with New Zealand.1

Background

Growth appears to have strengthened in the last months of 2012 and is estimated at 2½ percent for the year, as subdued household consumption and business investment and budget deficit reduction have been offset by strong agriculture production and continued expansion in the construction sector. Earthquake-related reconstruction is gathering pace.

Inflation remains subdued, with the exchange rate dampening tradable price inflation. Wage pressures are contained and by a range of measures the labor market remains soft. However, pressures have emerged in the housing market, notably in Auckland where supply bottlenecks persist and in Christchurch where construction cost inflation has accelerated.

The Reserve Bank of New Zealand (RBNZ) has kept the policy rate at 2½ percent for two years given uncertainty over the global outlook, soft domestic demand, benign inflationary expectations, and the strong New Zealand dollar. Favorable offshore borrowing conditions have reduced banks’ funding costs and contributed to a further lowering of lending rates. Net government debt grew from 5½ percent of GDP in 2008 to 20 percent in 2011, as a consequence of the policy response to the global financial crisis and the two earthquakes. The government has since established a medium term deficit reduction plan that aims to reduce the structural budget deficit by about 6 percent of GDP over four years, mainly through spending restraint.

The current account deficit in 2012 widened somewhat to 5 percent of GDP, reflecting some terms of trade losses, although it is well below the 8 percent level in 2005-08. Net external liabilities remain high at 72 percent of GDP at end-2012.

The banking sector remains sound. Asset quality remains good, the ratio of nonperforming loans to total assets is low and continues to decline from its peak, and return-on-assets is in line with the pre-crisis average. Capital adequacy has improved and is well above the Basel III capital requirements which the RBNZ began to put in place in January. Banks have shifted toward more stable funding sources facilitated by a combination of strong deposit growth and slower credit growth. Reliance on offshore wholesale funding has been reduced and is of longer maturity, and deposits now meet around half of banks’ funding requirements. Banks’ balance sheets are fully hedged against exchange rate risk.

The growth forecast for this year, currently at 2¼ percent, is subject to uncertainty. An increase in construction activity is offset by headwinds from budget deficit reduction, the strong dollar, and the recent severe drought. Over the medium term, output growth should peak at 2¾-3 percent as reconstruction spending increases further before converging to a trend rate of about 2½ percent. Underlying inflation is expected to increase but remain modest. Rising house prices, which are already elevated by standard metrics, are a growing concern, as they could lead to an increase in debt-financed household spending which would put pressure on aggregated demand, and increase the risk of an abrupt price correction. Other threats include the financial and economic fallout from an intensification of European sovereign debt problems and a slowdown in China, Australia, and other parts of Asia.

Executive Board Assessment

Executive Directors commended the authorities’ strong track record of prudent macroeconomic management in the wake of the global economic downturn and devastating earthquakes. While a recovery is underway, growth this year is likely to remain modest, with an increase in construction activity offset by headwinds from budget deficit reduction, the strong dollar, and the recent severe drought. Risks arise from persistent low national savings and large external liabilities, and from high and rising house prices. Directors welcomed the authorities’ continued efforts to reduce these vulnerabilities.

Directors agreed that the current accommodative monetary policy stance is appropriate, although a tightening may be warranted if house-price and credit expansion begin to fuel inflationary pressures. They were reassured that the reserve bank’s credibility and the effective monetary transmission mechanism would allow a smooth response to changing circumstances. A few Directors pointed out that higher interest rates could lead to further exchange rate appreciation.

Directors welcomed the medium-term consolidation plan and its focus on expenditure restraint. The planned pace of deficit reduction strikes the right balance between sustaining aggregate demand and limiting public debt growth. It withdraws fiscal stimulus at the right time by making room for increases in reconstruction spending. It also reduces pressure on monetary policy, creates fiscal space, and could help to raise national savings. Directors considered that the relatively modest public debt provides some scope to delay the planned deficit reduction in the event of a sharp deterioration in the economic outlook.

Directors noted that New Zealand’s large net liabilities reflect historically low household savings rates and a structural savings-investment imbalance. They agreed that the causes of low household savings will need to be addressed to reduce pressure on the exchange rate and limit current account deficits. In this context, Directors welcomed the shift in the composition of taxation from income to consumption taxes and looked forward to follow-up on the conclusions of the Savings Working Group. Directors further observed that other factors contributing to the overvalued exchange rate include a continuing gap between domestic and foreign interest rates and increased portfolio flows.

Directors agreed that banks remain sound, with recent stress tests showing that the major banks could withstand a variety of sizeable shocks. They observed, however, that banks remain exposed to highly leveraged borrowers and to rollover risks associated with large short-term offshore funding needs. Directors welcomed the reserve bank’s consideration of using macroprudential tools in a judicious way to limit risks in the housing market, as a complement to macroeconomic and microprudential measures.

Read more

ENDS

© Scoop Media

 
 
 
 
 
Parliament Headlines | Politics Headlines | Regional Headlines

 

PARLIAMENT TODAY:

  • Week in Parliament 22-05-15
  • Saturday Sitting
  • House Rises At Midnight
  • Telco Levy Bill Passes
  • Telco Levy Bill Completes First Reading
  • Social Housing Bill Passes Under Urgency

  • TPPA: University Of Auckland Warns Of Negative TPP Impact

    The University of Auckland May 20, 2015 University of Auckland Warns of Negative TPP Impact With the Trans Pacific Partnership (TPP) negotiation drawing to a close, the University of Auckland has expressed serious concerns about its potential implications. ... More>>

    NZ Flag: Flag Referendum Gets Hit Hard In New Poll

    The latest Campbell Live text poll confirms it is time for the Prime Minister to listen to the public and shelve his flag referendum, says the New Zealand First Leader Rt Hon Winston Peters. More>>

    Gordon Campbell: The Government’s Belated Moves On Property Speculation

    Is it a property tax on capital gains or a capital gains tax on property? The Jesuitical distinctions in the government’s spin about its latest moves on property speculators are all about whether the government can claim that it jumped, or confess that it ... More>>

    Grant Robertson:
    Key Can’t Just Be Prime Minister For Parnell

    John Key must show New Zealanders in next week’s Budget that he is more than the Prime Minister for Parnell, and is also the Prime Minister for Pine Hill, Putararu and Palmerston North, Labour’s Finance spokesperson Grant Robertson says. In a ... More>>

    Labour Party: More Regional Jobs Go In Corrections Reshape

    News that 194 Corrections staff are to lose their jobs will have ramifications not only for them and their families but for the wider community, Labour’s Corrections spokesperson Kelvin Davis says. Prison units at Waikeria, Tongariro and Rimutaka ... More>>

    ALSO:

  • NZ First - Prison Job Losses to Send Money Offshore
  • TPPA: ‘Team Obama’ Regroups On Fast Track, Still Not Deliverable

    ‘After yesterday’s stinging and unexpected defeat for the Obama administration’s attempt to advance Fast Track legislation in the US Senate, Senate leaders have worked up a compromise they think will get them past this blockage’, according to Auckland ... More>>

    NZ Government: 5,500 More Doctors And Nurses In Our Hospitals

    Health Minister Jonathan Coleman says a record number of doctors and nurses are working in District Health Boards across the country. More>>

    Controller and Auditor General: Katherine Rich Conflict of Interest Decision

    We are writing to you about a matter that has been raised with us by members of the public. More>>

    ALSO:


    Budget 2015: Andrew Little On The 2015 Budget

    Speaking to the Chamber of Commerce, the Labour opposition leader attacked the government’s approach to economic issues facing New Zealand. He said they have been “more than reckless in their complacency” and “the next week’s budget will do nothing ... More>>

    Defence Force: NZDF Building Partner Capacity Mission Personnel In Iraq

    NZDF Building Partner Capacity Mission Personnel in Iraq The New Zealand Defence Force Building Partner Capacity training mission contingent is in place at Taji Military Complex in Iraq. The Chief of Defence Force Lieutenant General Tim Keating says the ... More>>

    PM Press Conference: ACC Levy Cuts Announced

    In a press conference this afternoon in Wellington, ACC Minister Nikki Kaye proposed $500 million worth of ACC levy cuts. More>>

    Quakes: New Process For Red Zone Crown Offers

    Canterbury Earthquake Recovery Minister Gerry Brownlee has announced a process to give everyone a say on the Crown offers to owners of vacant, commercial/industrial and uninsured properties in the Residential Red Zone. More>>

    ALSO:

    Gordon Campbell: On The Battle Obama Is Waging Over The TPP

    For the past two and a half years, this column has been arguing that the fate of the Trans Pacific Partnership (TPP) deal will hinge on whether US President Barack Obama can win Trade Promotion Authority (TPA) from Congress... Last week, the White House finally, finally unveiled a draft TPA Bill. More>>

    ALSO:


    Gordon Campbell: On lessons for Labour from the UK election
    If the polls were right – and the pollsters kept telling us how accurate they’d been in 2010, and even Nate Silver was getting the same results – there seemed no way that the British Labour Party could lose last Thursday’s British election. With Labour predicted to win around 270 seats and the Scottish National Party batting around 55-60 seats, Labour seemed to be home free. But…as we now know, things didn’t turn out that way. Labour ended up with 232 seats and the Conservatives swept back to power with an outright majority, after winning only a little more than a third ( 36.9%) of the votes cast.MORE >>
    Also.

  • NZ PM John Key - PM congratulates David Cameron after UK election
  • The Nation IV Transcript - Hack Attack author Nick Davies
  • Get More From Scoop

     

    LATEST HEADLINES

     
     
     
     
     
     
     
     
     
    Politics
    Search Scoop  
     
     
    Powered by Vodafone
    NZ independent news