New Zealand Country Risk Report Q3 2018
The New Zealand economy is experiencing a gradual deleveraging cycle, which will weigh on real GDP growth over the coming years. Slow construction activity will act as a drag on overall growth, even though investment in the dairy sector should improve modestly along with milk prices.
We continue to expect the Reserve Bank of New Zealand (RBNZ) to hold its official cash rate steady at 1.75% over the course of 2018. There is no rush for New Zealand to follow the trend in global mon-etary policy tightening as the domestic economy is facing downside pressures while inflation is still below the bank's 1.0%-3.0% medium-term target.
Despite the gradual improvement since 2008, New Zealand's external accounts remain the economy's weak link and a persistent current account deficit poses risks of large-scale capital outflow. In order to correct these imbalances, we will need to see domestic savings rise sharply, while investment growth cools, which will undermine economic growth to some extent.
We expect the New Zealand dollar to remain in a broad range be-tween USD0.6800/NZD and USD0.7400/NZD in the short-term as its diminishing real interest rate advantage is buffered by improve-ments in its terms of trade. That said, the longer-term outlook is still weighted to the downside due to macroeconomic headwinds and likelihood of capital outflows.
Executive Summary Core Views Major Forecast Changes Key Risks Chapter 1: Economic Outlook SWOT Analysis BMI Economic Risk Index Economic Growth Outlook Slower Growth To Persist In 2018GDP By Expenditure Outlook TABLE: GDP GROWTH FORECASTS TABLE: PRIVATE CONSUMPTION FORECASTS TABLE: GOVERNMENT CONSUMPTION FORECASTS TABLE: FIXED INVESTMENT FORECASTS TABLE: NET EXPORTS FORECASTS Outlook On External Position TABLE: MAIN EXPORT AND IMPORT PARTNERS TABLE: MAIN EXPORTS AND IMPORTS TABLE: CURRENT ACCOUNT BALANCE FORECASTS TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE Monetary Policy Monetary Policy To Remain Expansionary Monetary Policy Framework TABLE: MONETARY POLICY FORECASTSFiscal Policy And Public Debt Outlook Growing Fiscal Surplus A Positive But To Fall Short Of Rosy Expectations Structural Fiscal Position TABLE: FISCAL AND PUBLIC DEBT FORECASTS TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES Currency Forecast NZD To Face Long-Term Headwinds TABLE: BMI CURRENCY FORECAST Chapter 2: 10-Year Forecast The New Zealand Economy To 2027Deleveraging Will Weigh On Growth TABLE: LONG-TERM MACROECONOMIC FORECASTS Chapter 3: Political Outlook SWOT Analysis BMI Political Risk Index Domestic PoliticsCoalition To Stay United But Risks Remain TABLE: POLITICAL OVERVIEW TABLE: BUDGET ALLOCATION SKEWED TOWARD NEW ZEALAND FIRST Long-Term Political Outlook Stability To Prevail, But Not Without Challenges Chapter 4: Operational Risk Developed StatesTABLE: LABOUR MARKET RISK INDEX TABLE: LOGISTICS RISK INDEXTABLE: CRIME AND SECURITY RISK INDEX TABLE: TRADE AND INVESTMENT RISK INDEX Chapter 5: BMI Global Macro Outlook Key Divergences Emerging In World Economy TABLE: GLOBAL MACROECONOMIC FORECASTS TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y TABLE: NEW ZEALAND – MACROECONOMIC DATA & FORECASTS