Country Report New Zealand June 2009

Outlook for 2009-10

• The centre-right National Party has a strong popular mandate and a large parliamentary majority by New Zealand's standards, putting the new prime minister, John Key, in a good position to push through his agenda.
• The Economist Intelligence Unit expects the government to unveil further fiscal measures to boost economic activity in its budget for fiscal year 2009/10 (July-June).
• The Reserve Bank of New Zealand (RBNZ, the central bank) is likely to cut interest rates again in the short term. The OCR is expected to average 2% in2009-10.
• We forecast that real GDP will contract by 2.7% this year, before growing by just 0.6% in 2010.
• Inflation has fallen back within the RBNZ's 1-3% medium-term target range. We forecast that average consumer price inflation will slow to 1.4% in 2009 and 1.3% in 2010.
• The New Zealand dollar will depreciate from NZ$1.42:US$1 in 2008 to NZ$1.83:US$1 in 2009 and NZ$2.11:US$1 in 2010.
• Owing to a significant narrowing of the trade deficit in 2009-10, the current-account deficit is forecast to shrink to the equivalent of 6.1% of GDP in 2009 and 5.9% in 2010.

Monthly review

• After a long political honeymoon period, the National Party-led government has been battered by a series of controversies, largely of its own making.
• Legislation replacing Aucklands eight existing councils with a super-city? council was passed by parliament in mid-May.
• The RBNZ reduced the official cash rate (OCR, the principal policy interest rate) by a further 50 basis points on April 30th, taking the OCR to a new record low of 2.5%.
• The government is concerned that a failure to contain the growth of the budget deficit and demonstrate how government debt will be cut in future years could trigger a downgrade in New Zealands sovereign debt rating.
• According to Statistics New Zealand, the seasonally adjusted unemployment rate rose to a six-year high of 5% in January-March, up from 4.7% in the previous quarter.
• Across the economy as a whole, wages increased by 3.4% year on year in the first quarter of 2009, compared with 3.6% in the fourth quarter of 2008. Wage settlements are expected to be squeezed as unemployment continues to rise.

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