New Zealand should expect strong and increasingly broad-based economic growth, according to the International Monetary Fund’s latest report on New Zealand, published today.
The IMF is forecasting annual economic growth in New Zealand to peak at 3.5 per cent next year and not fall below 2.5 per cent over the next few years. This growth will be driven by strong construction activity, higher prices for exports and increases in net migration.
“This is the latest in a series of encouraging reports on the New Zealand economy, which confirms that we are well placed compared with most other developed countries,” Mr English says.
“The IMF highlights the importance of getting the Government’s books back to surplus to help the Reserve Bank keep interest rates lower for longer. Under the previous government, excessive spending, alongside the booming housing market, contributed to floating mortgage interest rates reaching almost 11 per cent.
“A range of indicators points to broad-based growth in the economy. Building consents in March were nearly double the number issued three years ago. Business confidence remains near 20-year highs. And employment figures showed 84,000 more jobs in the year to March – the largest annual increase in employment since 2004.
“Sticking to our responsible economic management will help ensure Budget forecasts for strong economic growth, average wage increases of $7,600 by 2018, and unemployment falling to 4.4 per cent, all occur.”
The IMF is expecting New Zealand’s current account deficit to increase to around 6 per cent of GDP by 2016 – still well below the levels seen in the mid-2000s.
“Although this longstanding imbalance remains a vulnerability, the latest figures are encouraging with Statistics New Zealand showing the current account deficit at 3.4 per cent of GDP,” Mr English says.
“Getting on top of Government spending to keep interest rates down and promote broad-based economic growth is a key plank of that improvement.
“Overall, the IMF report confirms the Government’s economic programme is taking New Zealand’s economy in the right direction,” Mr English says.
“This is the best way to support jobs and raise New Zealanders’ living standards.”
Economic progress is not just important, it’s necessary if we also want sustainable environmental and social progress.
1. Economic developments. The economic expansion is becoming increasingly embedded and broad-based, with growth exceeding 3 percent in the second half of 2013, somewhat stronger than expected. The drivers include supportive financial conditions, record high export commodity prices, resurgent construction activity related to the Canterbury post-earthquake rebuild and general housing shortages, and a substantial increase in net immigration (text figures). Business and consumer confidence indicators have risen to the hi ghest levels since the global financial crisis. The labor market continues to strengthen with the unemployment rate falling to 6 percent (Figure 1). Strong terms of trade have narrowed the 2013 current account deficit to 3¼ percent of GDP and have contributed to the elevated New Zealand dollar, which continues to hold back growth in the non-agricultural tradeable goods sector. With the high exchange rate damping tradable price inflation, headline inflation has remained below the mid-point of the target band (Figure 2). Nominal wage inflation has so far remained subdued. . . .
3. Fiscal developments. Supported by healthy output growth the government’s aim of reducing the budget deficit is going according to pl an. The deficit is currently projected to decline almost ½ percent of GDOP to less than ½ percent of GDP this year due to restraint in expenditure growth. 1 The plan would reduce public debt from it s peak of 26 percent of GDP in 2013 to about 20 percent by 2018. The government just concluded selling stakes in state-owned enterprises, which generated proceeds of about 2 percent of GDP.
Near-term outlook. Growth is forecast to increase to about 3½ percent this year and moderate to a trend rate of 2½ percent over the medium term. Strong construction activity is expected to remain an important driver for near-term growth (text figure), although the speed of the Canterbury post-earthquake rebuild and its interaction with the wider economy are less certain. The terms of trade are projected to ease somewhat due to an assumed moderation in global dairy prices, but remain high relative to historical levels and continue to boost growth in national income. The current monetary policy stance remains well below neutral, and with leading indicators pointing to an economy that is set to grow above trend in the near-term, pressure on core inflation should follow, particularly from the construction sector . . .
Economic expansion which is becoming increasingly embedded and broad-based. Growth peaking at 3.5% next year and going no lower than 2.5% over the next few years. That is very encouraging.
It will be driven by construction activity, much but not all of which will be in Christchurch. Higher prices for exports and increases in net migration will also help.
This is of course predicated on a continuation of current government policies which encourage economic development, exports and immigration, not a change to a left-wing government which will hamper growth, is anti business in general and farming in particular and anti-immigration.