Stephen Collie: Overview of the New Zealand Economy

New Zealand Economy

“New Zealand, or Aotearoa has an open economy that works on free market principles”, says Stephen Collie. In the last three decades our economy has gone from being virtually over-regulated in the OECD to one of the least regulated, most free-market based economies.

Fertile soil and excellent growing conditions combined with advanced farming methods and sophisticated agricultural technology provide the ideal environment for pastoral, forestry and horticulture activities. Various primary commodities account for around half of all goods exports and New Zealand is one of the top five dairy exporters in the world.

Complementing primary production are sizeable manufacturing and service sectors and growing high-tech capabilities. Tourism, film production, and winemaking are also significant.

New Zealand EconomyStephen Collie notes: “Our country is one of the few bright spots among industrialized economies”. Loose monetary conditions, gains in real disposable income and solid growth in the construction, retail and tourism sectors have continued despite weak external demand, putting the economy on a solid footing. The unemployment rate dropped to a multi-year low in 2016 Q3 and although business confidence dipped in October, it logged the second highest reading this year, pointing to a still-solid expansion.

The NZ dairy export sector received some welcoming news in October as milk prices have gone up significantly since the end of Q3 and will contribute to easing the financial strain afflicting the industry. However, a massive earthquake struck the South Island of New Zealand on 14 November near Hanmer Springs, leaving a trail of destruction and billions of dollars of damage, according to Prime Minister John Key.

Stephen Collie: “We have a very export-driven competitive economy with exports accounting for about 30% of Gross-Domestic-Product”.

We also have a low-inflation environment, with monetary policy managed by the Reserve Bank, our independent central bank that is charged with maintaining price stability, and our exchange rate is one of long-stading flexibility, and there are no exchange controls or restrictions on bringing in or repatriating funds.

Our country is ranked by the World Bank as the easiest place in the world to start a business (2015) and the world’s second easiest country to do business in generally, and the Heritage Foundation rated NZ the world’s third freest economy in its 2015 IEF, just behind Singapore and Hong Kong.

“There are few restrictions on establishing, owning and operating a business here”, Stephen Collie says. In fact, by using the government’s online portals the official paperwork to set up a business can be completed in a matter of hours. New Zealand came in third in Forbes’ ‘Best Country for Business’ report, (December 2014) just behind Denmark and Hong Kong.

Forbes commented that “Over the past 20 years the government has transformed New Zealand from an agrarian economy dependent on concessionary British market access to a more industrialized, free market economy that can compete globally. This dynamic growth has boosted real incomes and broadened and deepened the technological capabilities of the industrial sector.”

Stephen Collie notes that New Zealand’s economic growth has been faster than most other developed countries in recent years, the OECD commented in 2015 that: “inflation and inflation expectations are well anchored… Strong fiscal monetary policy frameworks and a healthy financial sector have yielded macroeconomic stability, underpinning growth. Employment is high, in large part thanks to flexible labour markets and ample immigration, business investment is robust and households and firms are optimistic.”

New Zealand Dairy ExportsBetween 2000 and 2007, the New Zealand economy expanded by an average of 3.5% each year as private consumption and residential investment grew strongly. Annual inflation averaged 2.6%, inside the Reserve Bank of New Zealand’s 1% to 3% target range, while the current account deficit averaged 5.5% of GDP.

Like most OECD countries, New Zealand’s economy experienced an economic slow-down following the global financial crisis in September 2008. As in other advanced economies, business and consumer confidence declined. Unlike most OECD countries however, after a 2% decline in 2009, the economy pulled out of recession. It achieved 1.7% growth in 2010, 2% in 2011 and 3% in 2012. That compared with 0.3% growth in the UK and negative 0.9% in the euro area; 0.4% in Japan; 1.1% in Canada; and 1.6% in the USA.

Stephen Collie says: “Recovery was led mainly by exports, while relatively strong Government accounts and a well-capitalised banking system provided a stable base for the economy. These positives were supported by the continued boost to GDP from the rebuilding of Christchurch after earthquakes there in 2010 and 2011”.

Recent Economic Performance

By December 2014, annual growth had risen to 3.3%, the fastest rate of expansion in six years and, according the New Zealand Treasury, one of the strongest performances in the OECD

Growth for 2015 is expected to be around 3%, supported by net migration flows, labour income growth, and construction activity. It is expected to fall back for 2016 and 2017, largely due to deteriorating terms of trade, particularly for our dairy exports. This factor has been somewhat offset however by falling oil prices and a lower exchange rate which is helping exporters. From 2018, growth is forecast to pick up again.

Stock market performance

The NZX, The New Zealand stock market has recovered strongly from the global financial crisis, up 121% from 1 April 2009 to 30 June 2015. Despite key economic drivers coming off their highs, steady economic growth and a weaker currency is expected to underpin corporate earnings and securities valuations in the medium term.

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