“Growth to continue despite uncertainty and absence of confidence”, say BERL forecasters
The combination of on-going net migration inflows, employment and income growth, a range of infrastructure projects,
regional development initiatives, as well as surging Australian and recovering US economies ensure that expansion
continues to be the order of the day for the New Zealand economy, according to the March 2004 issue of BERL Forecasts.
“While recent commentaries have highlighted declines in confidence, it is significant that spending, (both consumption
and investment), export production and employment all continue to show signs of expanding further, despite business
confidence having been negative for 21 of the past 24 months”, said BERL Forecasts editor Dr Ganesh Nana.
In addition, house building, international visitor arrivals and import numbers all point to ongoing positive growth.
The shift to a pre-cautionary monetary policy stance (as opposed to the previously pre-emptive approach) signalled in
this month’s Reserve Bank Monetary Policy Statement is welcome. This stance bodes well for the continuation of the
expansion in investment spending and so the sustainability of this growth phase.
The Statement, however, appears to have been overshadowed by the furore created by the RB’s request for additional
powers to intervene in the foreign exchange market. We though, have difficulty understanding why this request has
created such a fuss, as it is merely moving NZ into line with almost all other central banks (in particular,
Australia’s).
The medium-term outlook sees the BoP deficit on current account grow to more than 5% of GDP over the forecast horizon,
reining in - to a degree - future exchange rate appreciation. However, global tugs-of-war between US, Japan and Eurozone
currencies could well continue to cloud the return to a sustainable level for the NZ$. In the light of fickle and
volatile confidence, the management of short-term expectations could well determine whether the NZ economy continues
along its sustainable growth path or whether it trips over obstacles - imagined or otherwise.
* the NZ economy has put together several years of robust growth and we forecast this expansion to continue. The ten
March years from 1993-2003 have seen only three years with recorded GDP growth below 3% - with the average for that
period being 3.7%pa.
* even more promising amongst the outcome for the latest four years has been the expansion in investment spending -
recording annual growth rates of 3.1%, 5.5%, 7.4% and 4.9%. Coupled with the expansion in employment, this data signals
an expansion in capacity and so suggests on-going growth is sustainable. This growth in the cake is also being driven by
new policies encouraging investment in quality urban infrastructure.
* similarly promising over the recent period has been the sustained employment growth which has seen a net 221,000 jobs
created over the past five calendar years. We view the continuation of a ‘tight’ labour market as a positive sign
leading to prospects for income growth and so underpinning further inward migration. In addition, it reinforces the need
for enlightened training and on-going infrastructure investments.
* we expect GDP growth in the year to March 2004 to average 3.0%, followed by 2.8%, 2.5% and 3.1% in the following March
years. In this context, our primary point of difference with the ‘consensus’ is that we have retained noticeably higher
growth for the 2006 March year. This in turn derives from divergent assessments as to the slowing in the migration
inflow and the impact of the recent currency appreciation.
* we forecast the trough in the net annual migration inflow to be at 15,000 in the year to June 2005 - continuing to be
underpinned by positive employment and income prospects and a growing surge in returning Kiwis.
* the appreciation is not forecast to halt the NZ economy’s expansion as other factors act to mitigate its effect. In
particular, the global resurgence in growth, Australia’s continued buoyancy and the effect of cheaper imports on the
investment cycle, all assist in underpinning overall activity. In this light, we have examined issues surrounding the
level of future dairy payouts and conclude that gloom is not justified here.
* the welcome shift to a pre-cautionary monetary policy stance (as opposed to the previously pre-emptive) approach bodes
well for the continuation of the expansion in investment spending and thus the sustainability of this growth phase.
* the Statement appears to have been overshadowed by the furore created by the RB’s request for additional powers to
intervene in the foreign exchange market. We though, have difficulty understanding why this request has created such a
fuss, as it is merely moving NZ into line with almost all other central banks (in particular, Australia’s).
* the BoP deficit on current account grows to over 5% of GDP over the forecast horizon - reining in - to a degree future
exchange rate appreciation. However, global tugs-of-war between US, Japan and Eurozone could well continue to cloud the
return to a sustainable level for the NZ$.
* the management of expectations surrounding events over this period that will determine whether the NZ economy
continues along its sustainable growth path or whether it trips over some obstacles - imagined or otherwise.