Country Report New Zealand February 2009

Outlook for 2009-10

• The centre-right National Party has a strong popular mandate and a robust parliamentary majority by New Zealand's standards, putting the new prime minister, John Key, in a good position to push through his agenda.
• Mr Key is keen to prevent major job losses, although the extent to which he can convince struggling firms to retain employees is unclear.
• The government has committed itself to further personal income tax cuts, beginning in April 2009.
• The Reserve Bank of New Zealand (RBNZ, the central bank) will continue to loosen monetary policy in response to the global financial crisis and the deteriorating outlook for global growth.
• The Economist Intelligence Unit has revised down its forecast for real GDP growth in 2009, in response to an increasingly bleak outlook for domestic consumption and exports. Real GDP is forecast to contract by 3.2% in 2009.
• We forecast that consumer price inflation will slow to 1.6% in 2009 and 1.3% in 2010 on the back of lower fuel and food prices.
• The New Zealand dollar will depreciate from an estimated average of NZ$1.42:US$1 in 2008 to NZ$2.19:US$1 in 2009 and to NZ$2.39:US$1 in 2010.
• The current-account deficit is forecast to narrow to the equivalent of 6.3% of GDP in 2009 and 5.5% in 2010.

Monthly review

• A “jobs summit” will be held on February 27th. Representatives from businesses, the public sector and trades unions will participate.
• The government has strongly criticised the EU’s decision to reintroduce export subsidies on dairy produce to help its dairy farmers.
• On January 29th the RBNZ reduced the official cash rate (OCR, the principal policy interest rate) by a further 150 basis points to 3.5%, bringing the cumulative rate reduction since July 2008 to 475 basis points.
• Infrastructure projects are likely to be at the centre of the government’s fiscal stimulus plan, although such projects could become bogged down in the regulatory processes enshrined in the Resource Management Act.
• Consumer price inflation fell by 0.5% quarter on quarter in the fourth quarter of 2008, owing in large part to falling fuel prices. Food prices remain high.
• Fonterra, the world's leading dairy exporter, announced another sharp cut in its forecast payout to farmers for the 2008/09 season (June-May).

Source: Country Report

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