Executive Summary.. 5
Core Views...5
Major Forecast Changes ....5
Key Risks To Outlook.....5
Chapter 1: Political Outlook. 7
SWOT Analysis... 7
BMI Political Risk Ratings..... 7
Domestic Politics... 8
Keys Victory An All-Around Win...8
The re-election of John Key and his New Zealand National Party is an all-around positive for New Zealands economy and business
environment. The administration is likely to pursue further pro-saving policies, helping the country become less vulnerable to external
shocks over the long term.
TABLE: POLITICAL OVERVIEW.. 8
Long-Term Political Outlook..... 9
Stability To Prevail, But Not Without Challenges.9
New Zealand is likely to remain one of the most stable states in the world over the coming decade. The governments main challenges
are to rein in the budget deficit, improve the business environment to attract greater foreign investment and raise opportunities for the
indigenous Maori population. In the realm of foreign policy, New Zealand is likely to continue relying on Australia as its guardian.
Chapter 2: Economic Outlook.... 11
SWOT Analysis..... 11
BMI Economic Risk Ratings.... 11
Economic Activity.... 12
Continued Deleveraging Points To Recession Risks In 2012...12
A combination of intensifying domestic deleveraging and weakening external conditions are likely to result in New Zealands real GDP
growth remaining very weak in 2012, and our 1.7% forecast is below consensus expectations of 3.1%. The risk of another outright
recession is growing, but as the domestic savings rate rises, the countrys vulnerability to external shocks will decline in line with a
strengthened net exports outlook.
TABLE: ECONOMIC ACTIVITY..... 12
Monetary Policy.... 13
Rate-Cutting Cycle Not Over Yet.....13
We are forecasting one 25-basis-point (bps) cut in the cash rate in early 2012, which is against consensus expectations of 50bps of rate
hikes but is in line with the interest rate markets. While we have kept our end-2011 forecast at 2.50%, a cut before year-end is a real
possibility. Debt deleveraging will continue to undermine money supply growth, which should turn negative in 2012, reducing consumer
price inflation to an average of 2.5% from the current level of 5.3%.
TABLE: MONETARY POLICY.... 14
Balance Of Payments.. 15
40 Years Of External Deficits Nearing An End...15
New Zealand will see its 40-year run of current account deficits come to an end by 2013 as foreign investors become increasingly
reluctant to finance New Zealands imports amid a slowing domestic economy. A strong trade surplus, assisted by a weakening
currency, will aid this process and will allow the country to gradually pay back its huge external liabilities, in turn reducing vulnerability to
external shocks.
TABLE: MONE Y SUPP LY... 15
Fiscal Policy..... 16
Structural Issues Will Keep Deficit High Despite Best Efforts..16
While New Zealand fiscal metrics are solid by developed-world standards, with public sector net debt at just 22.6% of GDP, the 9.3% of
GDP deficit in fiscal year 2010/11 (July-June) is a warning sign that the situation could deteriorate rapidly. We forecast a 7.7% deficit in
FY 2011/12 and expect continued high deficits over the coming years, with net debt hitting a peak of 40.1% by 2017. We do not see a
fiscal crisis on the horizon, however. 16
TABLE: FISCAL POLICY.... 17
Chapter 3: 10-Year Forecast.. 19
The New Zealand Economy To 2021.. 19
Deleveraging Will Put A Cap On Growth.....19
The main factors that contributed to New Zealands solid real GDP growth outturn over the past decade will not be in play to the same
degree over the next 10 years. Population growth will slow, terms of trade support will be hard to come by, and we expect New Zealand
households to enter a protracted deleveraging cycle. These factors should see real GDP growth average 2.6% over the 2013-2020
period, below the 3.6% growth rate seen over the 1999-2007 boom years.
TABLE: LONG-TERM MACROECONOMIC FORECASTS .... 19
Chapter 4: Business Environment. 21
SWOT Analysis..... 21
BMI Business Environment Risk Ratings.. 21
Business Environment Outlook.. 22
Institutions ... 22
TABLE: BMI Business And Operation Risk Ratings... 22
Infrastructure.... 23
TABLE: BMI Legal Framework Rating... 23
Market Orientation.... 24
TABLE: Labour Force Quality..... 24
TABLE: Asia, Annual FDI Inflows..... 25
TABLE: Trade And Investment Ratings..... 26
TABLE: TOP EXPORT DESTINATIONS .... 26
Operational Risk .. 27
Chapter 5: Key Sectors... 29
Agribusiness .... 29
TABLE: Livestock Production & Consumption.. 30
Tourism .... 32
TABLE: Tourist Arrivals – HIstorical Data & Forecasts.... 34
Chapter 6: BMI Global Assumptions. 37
Global Outlook.. 37
Eurozone Break-Up Risks Rising ...37
TABLE: GLOBAL ASSUMPTIONS ..... 37
TABLE: DEVELOPE D STATES REAL GDP GROWTH FORECAST .... 38
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS .... 38
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST ... 39