Country Forecast New Zealand October 2017 Updater

Country Forecast New Zealand October 2017 Updater

  • October 2017 •
  • Report ID: 2557805

  • New Zealand will continue to benefit from a stable political environment in 2018-22. Although political instability and uncertainty have increased in the immediate aftermath of the September 23rd general election, as neither of the two main parties won a majority, the longer-term implications are limited. The Economist Intelligence Unit expects that the incumbent National Party will reach a coalition agreement with New Zealand First and remain in office.
  • The next National-led government will continue to pursue an agenda of maintaining fiscal discipline, welfare reform, cutting red tape, developing extractive industries and pursuing free-trade agreements. However, it will face continued pressure to address the problem of housing affordability.
  • A challenging global environment will weigh on government revenue in the first half of the forecast period, but we expect modest budget surpluses to be maintained over the forecast period. Cuts in personal income tax will take effect in April 2018, and further reductions are possible.
  • We now expect the Reserve Bank of New Zealand (RBNZ, the central bank) to keep its policy interest rate, the official cash rate, unchanged at 1.75% in 2018. Previously, we had expected the RBNZ to cut the rate next year, but we no longer forecast as steep a slowdown in China, which will remove the urgency for a rate cut. We expect monetary policy to remain relatively accommodative throughout the next five years.
  • We estimate that real GDP, measured on an expenditure basis, expanded by 2.6% in 2017. In 2018-22 we forecast GDP growth of 2.2% a year on average. The main drivers of economic expansion-high net migration and robust construction activity-will moderate in the second half of the forecast period.
  • Consumer price inflation will average an estimated 1.8% in 2017. From 2018 the risks to the outlook will shift to the downside, as a slowdown in the Chinese economy weighs moderately on global inflation and commodity prices. We forecast average annual inflation of 2.1% in 2018-22, comfortably within the RBNZ's 1-3% target band.
  • We estimate that the New Zealand dollar's value will average NZ$1.42:US$1 in 2017, before falling in 2018-19 as the global economic environment weakens. The exchange rate is forecast to average NZ$1.59:US$1 a year in 2018-22.
  • The current-account deficit will average the equivalent of 3.2% of GDP in 2018-22 as shortfalls on the trade and income accounts more than offset a surplus on the services account.


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Country=NewZealand Date=201710 Publisher=TheEconomistIntelligenceUnit Price=1000