Country Forecast New Zealand March 2018 Updater

Country Forecast New Zealand March 2018 Updater

  • March 2018 •
  • Report ID: 5370303 •
  • Format: PDF


  • The Economist Intelligence Unit expects the governing coalition between the Labour Party and New Zealand First (NZ First) to serve a full term in office. However, policy differences between the parties and with the Green Party, which supports the coalition on key votes, will intensify in the run-up to the next election, which must be held in 2020.
  • The Labour-NZ First government will be more interventionist than its predecessor. During its term the government will look to tighten rules on immigration and foreign purchases of existing residential housing. Other priorities include increasing the availability of affordable housing and improving workers' rights.
  • We forecast that modest budget surpluses will be maintained in 2018-22. Additional expenditure related to spending proposed by the former National Party-led government will be partly funded by repealing the cuts to personal income tax due to take effect from April 2018, which National enacted in May 2017.
  • We 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, but we also expect it will start to tighten monetary policy from early 2019. The government has indicated that it will instruct the RBNZ to shift from solely targeting inflation towards also focusing on achieving full employment.
  • We forecast GDP growth of 2.3% a year on average in 2018-22. Weaker population growth and the winding-down of post-earthquake recon-struc-tion work will dampen the expansion of domestic demand.
  • The headline inflation rate will remain comfortably within the central bank's 1-3% target band over 2018-22, with a modest tightening of monetary policy helping to constrain inflationary pressures.
  • An increase in the differential between policy interest rates in New Zealand and the US-as we expect the US Federal Reserve (the US central bank) to tighten monetary policy three times in 2018-will put downward pressure on the New Zealand dollar this year. The exchange rate is forecast to average NZ$1.53:US$1 by 2020, compared with NZ$1.41:US$1 in 2017.
  • The current-account deficit will average the equivalent of 2.7% 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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