New Zealand Business Forecast Report Q3 2012

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Increasing Distrust Could Derail Asset Sale Plans
The ruling National Party faces increasing pressure as the lack of details in its recent budget policies has sparked questions about
the thoroughness of its policy thought and basis of cuts proposed As a result, voter support for the party has slipped, with Labour
and Green opposition parties gaining ground The government's re-election chances could be damaged if it does not provide more
substantial details
Opposition Parties Could Use Weakness To Delay Asset Sales
TABLE: POLITICAL OVERVIEW
Stability To Prevail, But Not Without Challenges
New Zealand is likely to remain one of the most stable states in the world over the coming decade The government's 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 A key
wild card is whether New Zealand deepens political ties with its neighbour, possibly in the form of a confederation
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Few Factors To Mitigate A Weak 2012 GDP Print
New Zealand growth faces growing downside pressure as persistent problems continue to plague its trade partners, and weigh down
on its weak growth With both business and consumer sentiment deteriorating in recent months, we expect domestic demand to remain
weak, in line with our subdued forecasts With export growth to China and Australia contracting in recent months, we maintain our
bearish outlook for 2012, and expect real GDP growth to come in at a weak 1 7%
Fiscal Policy
Surplus Goal Out Of Reach
The recently announced budget for FY2012/13 by the New Zealand government reflected its determination to meet its previously set
goal: to return the budget to surplus in FY2014/15 While the government will implement measures to increase tax revenues and cut
costs, we believe the estimates are overly optimistic Given our bearish outlook for the economy, we have revised down our forecast for
the budget deficit to come in at 7 0% of GDP this financial year, compared with our previous forecast of 5 1%
TABLE: FISCAL POLICY
Monetary Policy
Credit Growth Rebound Unlikely Even With Rate Cut
We continue to expect money supply growth in New Zealand to remain subdued in 2012 and 2013, as both domestic and global
demand continues to slow, undermining the demand for credit We expect the recent improvements in data for building consents and
credit growth to be short-lived, as the poor outlook for businesses is more likely to cap any demand growth
TABLE: MONETARY POLICY
Balance Of Payments
NZD Weakness To Support Current Account
Although New Zealand continued to cling to its narrow trade surplus in April, the sharp contraction in exports highlights the country's
dependence on Australia and China, where we have seen economic activity slow drastically In spite of the recent decline in exports, we
expect New Zealand to maintain its 2012 trade surplus of 1 7% of GDP as weak domestic demand will keep import growth at bay Thus,
we maintain our 2012 forecast for the current account deficit to narrow to 2 0% of GDP and continue to expect the current account to
return to surplus by 2014
TABLE: CURRENT ACCOUNT
Chapter 3: 10-Year Forecast
The New Zealand Economy To 2021
Deleveraging Will Put A Cap On Growth
The main factors that contributed to New Zealand's 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 4% over the 2013-
period, below the 3 6% growth rate seen over the 1999-2007 boom years
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
Infrastructure
TABLE: BMI LEGAL FRAMEWORK RATING
Market Orientation
TABLE: LABOUR FORCE QUALITY
TABLE: ASIA, ANNUAL FDI INFLOWS
Operational Risk
TABLE: TRADE AND INVESTMENT RATINGS
TABLE: TOP EXPORT DESTINATIONS
Chapter 5: Key Sectors
Tourism
TABLE: HOTELS DATA, 2009-2016 ('000, UNLESS STATED)
TABLE: ARRIVALS DATA, 2009-2016
Agribusiness
NEW ZEALAND MILK PRODUCTION, CONSUMPTION & TRADE
NEW ZEALAND BUTTER PRODUCTION, CONSUMPTION & TRADE
NEW ZEALAND CHEESE PRODUCTION, CONSUMPTION & TRADE
NEW ZEALAND WHOLE MILK POWDER PRODUCTION, CONSUMPTION & TRADE
NEW ZEALAND POULTRY PRODUCTION, CONSUMPTION & TRADE
NEW ZEALAND PORK PRODUCTION, CONSUMPTION & TRADE
NEW ZEALAND BEEF & VEAL PRODUCTION, CONSUMPTION & TRADE
Other Key Sectors
TABLE: PHARMA SECTOR KEY INDICATORS
Chapter 6: BMI Global Assumptions
Global Outlook
World Slows As Euro Crisis Simmers
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST 43