New Zealand Outlook - Flying Towards Turbulence

Key Points From the Attached New Zealand Outlook Report

• The New Zealand economy will likely expand 2.8% in 2016, driven largely by construction and housing.

• Low inflation, a high exchange rate, and weak external conditions will cause the central bank to cut interest rates to 1.75% by year’s end.

• The housing market remains buoyant despite measures meant to curb it.

• The expanding population will likely cause GDP growth per capita to remain flat and fall later this year.

New Zealand was arguably the standout regional Asia-Pacific economy over the past three years. GDP expanded more than 3% and employment gains were plentiful; the jobless rate has fallen to 5.3%. The housing market-led consumptions growth drove the economy, with house price gains averaging 7.8% in 2014 and 2015. Driven by higher population growth, consumption will continue its pivotal role in buttressing growth, and GDP will likely expand 2.8% in 2016.

But risks are downwardly skewed, and the untethered growth is unlikely to last. The tailwind from the Canterbury earthquake reconstruction is nearly over, as the rebuilding activities likely peaked in 2015. Elsewhere, given low diary prices and suppressed farm incomes, external headwinds will sting more than in previous years. The economy is expected to come out relatively unscathed but not without a helping hand.

Moodys_AnalyticsNewZealandOutlookFlyingTowardsTurbulence_Apr2016.pdf

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