New Zealand Economy

The New Zealand economic recovery strengthened in the fourth quarter of 2009; growing 0.8% compared to the September quarter. The result matched consensus and beat the previous result of a revised 0.3%, marking the 3rd quarter of positive growth and placing GDP into positive territory on an year on year basis at 0.4%.


Industries that gained the most in the quarter were Manufacturing (0.5), Wholesale trade (0.2), Electricity, gas and water (0.1), Retail, accommodation and restaurants (0.1), and Government administration and defence (0.1). Industries that detracted were Personal and community services (-0.1), and Fishing, forestry and mining (-0.1).

On a sector basis, much of the growth came from change in inventories (2.3), followed by Private and Government final consumption expenditure, and residential building (respectively: 0.5, 0.2, 0.2). While sectors that detracted from growth were Imports (-1.7), Exports (-0.3), and other fixed asset capital formation (-0.4).

The outlook for the New Zealand economy is reasonably strong with largely balanced risks to the upside and downside. It's likely that the recovery will continue to strengthen but that growth will soon settle into a more subdued pace than previous years. There's also little sign that people are changing their ways i.e. no structural change, rather a cyclical recovery.

There are two key areas to watch for New Zealand in the medium term: Monetary policy, and Fiscal policy. In terms of monetary policy the RBNZ has given guidance to the market that it will raise the official cash rate from 2.5% in the middle of the year (i.e. June); the relatively strong GDP result will only add to the case.

On the Fiscal policy front, the budget is due for release on the 20th of May and will likely layout changes in tax e.g. increasing the GST sales tax to 15% from 12.5%, lowering personal and investment tax rates, and closing property investment loopholes. The government also has a range of initiatives stemming from a think tank (Capital Markets Development Taskforce) on capital market development that will support growth over the medium to long term.

Overall there is a lot of promise for the New Zealand economy over the medium to long term if the government gets it right on its strategy for growing capital markets and encouraging productive asset investment, and exports. Progress made will build on the strong foundation that the agriculture sector (and increasingly, the energy and resources sector) have provided.

Sources:
Statistics New Zealand www.stats.govt.nz
Econ Grapher Analytics www.econgrapher.com

Article Source: http://www.econgrapher.com/26mar-nzgdp.html