Lewes, DE -- (SBWire) -- 04/14/2016 --The New Zealand economy is experiencing a gradual deleveraging cycle, which will weigh on real GDP growth over the coming years. While declining oil prices will provide some support to corporate profit margins and economic activity, these positives will likely be offset by the joint deterioration in the dairy and construction sectors, which remain the two key pillars of the economy.
New Zealand's fiscal accounts remain in better health compared with most developed market economies. The government posted a budget surplus equivalent to 0.3% of GDP for FY2014/15 (July- June), fulfilling its promise made in 2011 to return the government's accounts to positive territory by FY2014/15. We expect the country's fiscal surplus to continue growing over the coming years, and this will be supported by continued spending restraint, which should keep government spending relative to GDP stable even as the welfare burden grows.
Following cuts totalling 100 basis points (bps) since its June 2015 monetary policy meeting, we are forecasting the Reserve Bank of New Zealand (RBNZ) to cut its official cash rate by another 50bps to 2.00% in 2016 as a result of a weak economy. With inflation remaining well below its medium-term target of 2.0%, the central bank will also be pressured to ease interest rates in an attempt to spur inflation.
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.
While the New Zealand dollar is likely to range trade against the US dollar in the short term, we maintain that further kiwi weakness is likely over the medium term as the country's high elevated level of external indebtedness leaves the currency exposed to capital outflows amid weak dairy prices and a precarious property market.
Major Forecast Changes
- We have revised lower our 2016 real GDP growth forecast to 2.3% (from 2.5% previously) given the significant downside risks to economic activity in the agriculture and construction sectors.
- We now expect the RBNZ to cut its benchmark policy rate by 50bps to a new historical low of 2.00% (versus 2.25% previously) given the central bank's dovish rhetoric, continued downside risks to economic activity, and below target inflation.
- We have revised stronger our 2016 average forecast for the New Zealand to USD0.6500/NZD (from USD0.5800/NZD previously), and this is further elaborate in the currency forecast section.
- Despite our upgrade, we remain bearish the NZD against the USD as its high level of external indebtedness continues to leave the currency exposed to capital outflows as the economy remains subdued amid a weak agricultural sector and a precarious real estate market.
Spanning over 43 pages "New Zealand Country Risk Report Q2 2016" report covers Executive Summary, Economic Outlook, 10-Year Forecast, Political Outlook, Operational Risk.
For more information Visit at: http://www.marketresearchreports.com/business-monitor-international/new-zealand-country-risk-report-q2-2016
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