Country Report New Zealand March 2009

Outlook for 2009-10

• The 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.
• Real GDP growth is expected to contract by 3.2% in 2009, owing in large part to the ongoing deterioration in import demand from New Zealand's main trading partners and a dreary outlook for domestic consumption.
• Exports of goods and services will perform poorly, given the deterioration in external demand. Exports are expected to contract by 8% in 2009 and by 1.8% in 2010.
• The Economist Intelligence Unit forecasts that consumer price inflation will slow to an average of 1.6% in 2009 and 1.3% in 2010.
• We expect that the New Zealand dollar will depreciate from NZ$1.42:US$1 in 2008 to NZ$2.18:US$1 in 2009 and NZ$2.39:US$1 in 2010.
• Although the trade balance will improve, the deficit on the income account will remain large. The current-account deficit is forecast to narrow to the equivalent of 6.3% of GDP in 2009 and 5.9% in 2010.

Monthly review

• The government has introduced plans for spending on infrastructure and tax breaks for small and medium-sized enterprises as part of a fiscal stimulus package to assist the economy in the recession.
• Around NZ$100m (US$57.8m) of the planned infrastructure development is scheduled to begin before the middle of 2009.
• Mr Key raised the possibility that the government could help the country's leading white-goods manufacturer, Fisher and Paykel Appliances, after it was revealed that the company was facing a collapse in profits.
• The government has wasted little time in repealing the widely discredited Electoral Financing Act that was passed by the previous government, led by the Labour Party.
• Important amendments to the Resource Management Act have been introduced in parliament, in part to avoid major infrastructure projects becoming bogged down in its complex regulatory processes.
• The seasonally adjusted unemployment rate rose further, to 4.6% in the fourth quarter of 2008, up from 4.2% in the previous quarter.
• Retail sales fell by 0.6% quarter on quarter in volume terms (seasonally adjusted figures) in the fourth quarter of 2008, a drop of 4% year on year.

Source: Country Report