Country Report New Zealand November 2009

Outlook for 2010-11

• The ruling centre-right National Party enjoys strong public support, as well as a large majority in parliament, which will help the party in pursuing its policy agenda.
• The relatively high level of public expenditure expected in 2010-11, combined with weak revenue growth, means that the outlook for the government's fiscal accounts is poor.
• The Economist Intelligence Unit now expects the Reserve Bank of New Zealand (the central bank) to begin raising its main policy interest rate from its current level of 2.5% in mid-2010, and to continue raising rates in 2011.
• We forecast that real GDP will grow by 1.6% in 2010 and 1.8% in 2011, after contracting by an estimated 0.6% in 2009.
• Consumer prices are expected to rise by just 2.1% in 2010, after increasing by an estimated 2.3% in 2009. Inflation is expected to average 2.2% in 2011.
• We forecast that the New Zealand dollar will strengthen to an average of NZ$1.33:US$1 in 2010 and NZ$1.31:US$1 in 2011, based on the assumption that the currency will remain popular among investors.
• After swinging back into the black for the first time in six years in 2009, the merchandise trade balance is expected to remain in surplus in 2010-11.
• The current-account deficit is forecast to widen to the equivalent of 5.1% of GDP in 2010 and 5.2% in 2011, from an estimated 4.9% in 2009.

Monthly review

• According to an opinion poll published in mid-October, 57.5% of respondents supported National. This is the party's highest level of support in many years, and represents a lead of 29.5 percentage points over Labour.
• Voters will get the chance to decide on whether or not to retain the mixed member proportional representation electoral system. The referendum on the issue will be on the ballot at the next general election, due in late 2011.
• The deficit for fiscal year 2008/09 (July-June) 2009 totalled NZ$10.5bn (US$7.1bn), NZ$1.2bn more than previously forecast by the government.
• The continued slump in import demand and a drop in profits earned by foreign direct investors from their New Zealand subsidiaries helped to reduce the country's large current-account deficit in the second quarter of 2009.
• The headline rate of inflation fell slightly, to 1.7% year on year, in the third quarter of 2009, from 1.9% in the second quarter and 3% in the first. This was the lowest annual inflation rate in more than four years.

Source: Country Report