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New Zealand Business Forecast Report Q3 2012

742.76

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Electronic License

Electronic License

An electronic version (mostly PDF, but can be Excel or PPT), which is either available for immediate download or will be sent via email by the Publisher of the report. The licencing for an electronic version is for use by the purchaser ONLY.

£742.76

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Market

All Sectors

Report Type

Country Guide

Country

New Zealand

Published

1 July 2012

Number of Pages

43

Report Delivery

Download

Delivery Lead Time

Immediate

Publisher

Business Monitor International

File Format

PDF

With economies of its key trading partners starting to deterirate, the external environment will help boost flagging domestic demand in New Zealand. As households continue to deleverage and the outlook for businesses sour, we expect demand growth to be poor, and New Zealands real GDP growth to come in weak at 1.7% in 2012. We believe that the risk of recession is growing as fewer factors now mitigate any further deterioration of demand growth. The interest rate cutting cycle, although on hold since Q112, is not yet over.

Debt deleveraging will continue to limit money supply growth as the demand for credit remains low, reducing upward pressure on consumer price inflation. We have, therefore, revised down our forecasts for consumer price inflation to average at 1.5% in 2012. 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 as the domestic economy slows. A strong trade surplus, assisted by a weakening currency and falling import growth, will aid this process and will allow the country to gradually pay back its huge external liabilities and reduce its vulnerability to external shocks.

The National Party recently delivered its first budget since the election. It has retained a goal of achieving a balanced budget by 2014/15. While the lack of details has led to some loss in voter support, to the benefit of the opposing Labour and Green parties, we do not see any immediate threat to its ability to formulate policy. We have maintained our short-term political risk rating at 85.2 (out of 100), but highlight that shortcomings in policy planning could impede the success of the implementation of divisive policies such as the asset sales.

Major Forecast Changes

We have downgraded our outlook for New Zealand fiscal balance, forecasting the deficit to worsen to 7.0% of GDP in FY2012/13. We further expect the budget to return to surplus only in FY2016/17. While the government continues its recent efforts to make present and future expenditure more sustainable, gross debt is expected to continue to grow, peaking in FY2014/15 at 57.3% of GDP. Given that government budgeted most of 2013-16 infrastructure outflows to be funded by asset sales proceeds which we believe are overly optimistic estimations, we have downgraded our outlook for growth in gross capital formation. This has led to the downgrade of our real GDP growth forecast for 2013-16, to 2.2% in 2013, 2.5% in 2014 and 2015, and 2.6% in 2016.

Risks To Outlook

The most pertinent risk comes from a banking crisis in Australia, which would likely spread to New Zealand given the external borrowing of local banks. While not our core view, this could trigger a severe debt deflation spiral in the country. Another related risk comes from a global recession, brought about by a recession in the US and potentially China. This would hit the price of New Zealands export commodities and corporate profits. On the positive side, there is a risk that further interest rate cuts by the Reserve Bank of New Zealand and Reserve Bank of Australia, could trigger a revival of the housing market, similar to the one in Australia in 2009. This poses upside risks to our weak growth forecast.

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+44 (0) 203 086 8600

Select License Type

Electronic License

Electronic License

An electronic version (mostly PDF, but can be Excel or PPT), which is either available for immediate download or will be sent via email by the Publisher of the report. The licencing for an electronic version is for use by the purchaser ONLY.

£742.76

Change Currency

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USD

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