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New Zealand Country Risk Report Q3 2018

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 2018
GDP 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 FORECASTS
Fiscal 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 2027
Deleveraging Will Weigh On Growth
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Coalition 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 States
TABLE: LABOUR MARKET RISK INDEX
TABLE: LOGISTICS RISK INDEX
TABLE: 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

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