2013-10-22 08:37:16 - Recently published research from Business Monitor International, "New Zealand Business Forecast Report Q4 2013", is now available at Fast Market Research
While we have raised our forecast for 2013 real GDP to come in at 2.5%, on the back of improving global sentiment, which is likely to support private consumption growth in New Zealand, we highlight that the uptick driven by stimulus and monetary easing is unsustainable. As such, these upgrades in no way reduce the downside risks that the New Zealand economy continues to face.
We believe that the Reserve Bank of New Zealand (RBNZ) will keep interest rates on hold at 2.50% until 2014, keeping monetary conditions easy as the economy adjusts to a slower rate of credit growth. Indeed, we expect the central bank to concentrate on cooling the housing market through its macro-prudential rules, and note that more
regulation will be likely even after the increased capital requirements and restrictions on the number of low loan-to-value ratio loans (LVR).
Full Report Details at
- www.fastmr.com/prod/694766_new_zealand_business_forecast_report_ ..
Volatile weather and quality/contamination concerns will persist to be key risks to New Zealand exports going forward, given the changing composition of its trade with the external world. While the return to a positive trade balance is likely to have been delayed, the reduction in external liabilities of the banking sectors has helped both the trade and income accounts. The overall narrowing of the current account deficit over the coming years will allow the country to gradually pay back its huge external liabilities and reduce its vulnerability to external shocks.
The National Party remains determined on achieving its goal of returning the fiscal budget to surplus in fiscal year 2014/15. While the issues of housing affordability, drought assistance for farmers and controversial decisions on the country's pull-out from the second commitment period of the Kyoto Protocol remain contentious topics that could affect the ruling party's popularity as it approaches parliamentary elections in 2014. That said, we do not see any immediate threat to its ability to formulate policy. We maintain our short-term political risk rating at 84.0 (out of 100), and expect the issue of affordable housing to be one of the key issues in the 2014 elections. In this respect, the stubbornly high unemployment rate could prove to be a problem for the National party.
Major Forecast Changes
On the back of improved sentiment surrounding global economy as respective governments and central banks pushed stimulus packages and kept monetary conditions easy, we have raised our 2013 real GDP forecast to 2.5%, as we expect households to participate in this rising sentiment. While we maintain that the economy would eventually need to return to the deleveraging process, in particular, households finances remain extremely precarious, the changing structural of the economy has afford some room as its reliance on neighbouring Australia has declined.
We have revised down our expectations for current easy monetary conditions to persist for longer despite the continual rise in house values beyond 2007 highs. The main driver of this view is our expectation for declining external demand to prove too great for businesses to ignore, which could weigh on domestic demand. We now see a growing possibility for the RBNZ to cut rates instead to support businesses and maintain our expectations for the central bank to increase its use of macro-prudential tools to help temper household credit growth.
Key Risk To Outlook
A global recession, brought about by a recession in the US and China. This would hit the price of New Zealand's export commodities and corporate profits.
A banking crisis in Australia, which would likely spread to New Zealand given the external borrowing of local banks, could cause extreme stress to the financial system as liquidity and credit dry up. This could accelerate the debt deflation spiral in the country.
A strong NZD, supported by demand for 'safe' assets as uncertainty surrounding the eurozone continues, could cause the country to accumulate even greater external imbalances. We maintain that the economy has to eventually head back on the path of deleveraging and redistributing resources to productive sectors in the economy.
Volatile weather conditions, such as the extreme dry conditions in key farming regions in the north, could adversely impact export volumes and farmers' profitability. This could affect export performance, and poses downside risks to our overall growth forecast.
About Business Monitor International
Business Monitor International (BMI) offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities, across 175 markets. BMI offers three main areas of expertise: Country Risk BMI's country risk and macroeconomic forecast portfolio includes weekly financial market reports, monthly regional Monitors, and in-depth quarterly Business Forecast Reports. Industry Analysis BMI covers a total of 17 industry verticals through a portfolio of services, including in-depth quarterly Country Forecast Reports. View more research from Business Monitor International at www.fastmr.com/catalog/publishers.aspx?pubid=1010
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