Country Report New Zealand December 2008

Outlook for 2009-10

• The centre-right National Party was the clear winner in the general election held on November 8th. The new prime minister, John Key, is in a good position to push through his agenda.
• The new government intends to implement its planned personal tax cuts from fiscal year 2009/10 (July-June), and is expected to implement a fiscal stimulus package to help the economy through a prolonged recession.
• The Reserve Bank of New Zealand (the central bank) will continue to cut its key policy interest rate, the official cash rate (OCR), in the short term. The OCR is expected to average 3.4% in 2009 and 2.5% in 2010.
• Real GDP is expected contract by 0.9% in 2009, before picking up to growth of just 0.7% in 2010. The global financial crisis and the slowdown in world trade expansion will have a negative impact on domestic economic growth.
• The Economist Intelligence Unit forecasts that annual average consumer price inflation will slow to 3.3% in 2009 and 2.4% in 2010.
• We forecast that the New Zealand dollar will depreciate from NZ$1.84:US$1 in 2009 to NZ$1.96:US$1 in 2010.
• The current-account deficit is forecast to narrow to the equivalent of 5.7% of GDP in 2009. The deficit will narrow further in 2010, to 4.9% of GDP.

Monthly review

• The new government is a four-party coalition consisting of National (with 58 seats in parliament), the pro-market ACT (with five seats), the Maori Party (also with five seats) and United Future (with one seat).
• The former Labour Party prime minister, Helen Clark, announced her retirement during her concession speech. Phil Goff was quickly elected to replace her as party leader.
• Mr Key has indicated that he is likely to adopt a cautiously countercyclical approach to fiscal policy, emphasising more efficient public spending but otherwise seeking to stimulate the weakening economy.
• Mr Key will be taking another look at the legislation at the emissions trading scheme that the Labour government passed in September.
• On November 1st Treasury announced a temporary guarantee of wholesale borrowing by investment-grade financial institutions with a credit rating of BBB or higher that choose to opt into the scheme.
• House sales were down by 35% year on year in October. Weak demand and poor financing conditions meant that the number of new housing starts authorised was the lowest in any month since January 1992.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;65
NAICS Code: 52;53