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The New Zealand Economy – A Shining Star Down Under

18-3-2014
 
 
The New Zealand Economy – A Shining Star Down Under
Article by Michael Robinson
 

CNBC has recently reported that the HSBC Chief Economist for Australia and New Zealand, Paul Bloxham, has stated that New Zealand’s growth is set to outpace most of its developed market peers during the next few years. “New Zealand will be the ‘rock star’ economy of 2014”.

HSBC forecast that the Kiwi economy would grow 3.4% in 2014, the fastest pace since 2007 and well above trend growth of 2.5%. It was expected to post growth of 3% for the 2013 year. The factors leading to this expansion were listed as:  
  • Construction spending arising from the rebuild of Christchurch following the devastating 2011 earthquake evidenced by the enormous construction activity centered on the rebuilding of Christchurch and the Canterbury region following the devastating 2013 earthquake. Reconstruction in this area is not expected to peak until 2017 and as such will continue to boost the economy for some considerable time.  
  • The country’s housing boom, fuelled by an increasing wave of net immigration and low interest rates.
  • Rising dairy and agricultural commodity prices underpinned by strong demand from China and other developing markets.  Dairy prices have increased by more than 50% over the past year.

Analysts have identified that the two main areas of risk arise from the fact that New Zealand’s two major export markets, China and Australia, are expected to slow in the coming 12 months.  In addition the New Zealand government is looking at returning to a budget surplus by the 2014/2015 year and as such the strong government consumption growth in the third quarter of 2013 is unlikely to be sustained.

CNBC reports that “Many investment strategists recommend betting on assets that were set to benefit from the country’s economic surge, in particular the New Zealand dollar”.

Additional positive factors are a dramatic increase in New Zealand’s terms of trade index to the highest level since 1973.  Business, consumer and farming confidence are all at, or near, all-time highs.  Most domestic companies have strong balance sheets and plenty of capacity to expand and invest.  Instructive examples of New Zealand entrepreneurs succeeding on an international platform are accounting software developer Xero Limited (http://www.xero.co.nz) and security and risk management specialist Wynyard Group (http://www.wynyardgroup.co.nz).

New Zealand’s unemployment is currently at the very low rate of 6.2% and it is anticipated that unemployment will reduce to approximately 5% by the end of 2014. 

The general consensus is that the outlook for the New Zealand economy is exciting and certainly the best that it has been since the early 1970s.  Economic commentator Brian Gaynor concludes “the present export and investment led upturn could be maintained for several years – as long as dairy prices don’t collapse, the Chinese economy doesn’t go into an unexpected downturn and there isn’t an external shock like that of the mid 1970s” (oil shocks).

As recently as 28 January 2014 credit rating agency Moodies confirmed New Zealand’s AAA credit rating stating “New Zealand’s economy and government finances are on an improving trend in the aftermath of a prolonged, albeit, mild recession and a series of earthquakes that had serious effects on both”.  New Zealand is one of only 10 countries to receive the AAA rating (also being the second smallest ahead of Luxembourg).
 
 
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33237 Auckland
New Zealand
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