IMF backs NZ progress


The IMF is backing New Zealand’s progress:

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.

 The IMF report says:

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.




IMF backs govt, warns against change


The International Monetary Fund is backing the government’s economic prescription.

Confirmation from the International Monetary Fund that New Zealand’s growth prospects have improved and that its macro-economic framework remains sound is a welcome further endorsement of the Government’s economic programme, Finance Minister Bill English says.

As the IMF notes in its concluding statement issued today, New Zealand’s economic expansion is becoming increasingly embedded and broad-based. It forecasts annual economic growth will increase to about 3.5 per cent this year.

“It’s encouraging that the IMF has again noted that our macro-economic framework remains sound and provides policy space to respond to adverse shocks,” Mr English says

“In particular, it concludes the Government’s focus on returning to surplus next year will help to preserve its favourable standing with external creditors against New Zealand’s background of relatively high net foreign liabilities.

“I also agree with the IMF that New Zealand faces some risks, including globally from any downturn in the fortunes of China and the rest of Asia, and on the domestic front from issues around housing affordability.

“As the IMF notes, the Government’s steps to help alleviate housing supply bottlenecks and the Reserve Bank’s measures to tighten mortgage lending and to raise interest rates should help to ease house price pressures.

“The Government’s fiscal deficit reduction programme is also expected to take some pressure off the exchange rate, as the IMF acknowledges.

“So this latest report on New Zealand confirms we remain on the right track to build a faster-growing economy and to manage the global and domestic risks that might come our way,” Mr English says. “That’s important if we are to support more jobs and higher incomes for New Zealand families.”

Support for the National-led government’s prescription is also a shot across the bows of the opposition parties which want to change it with higher taxes, higher spending and meddling with the Reserve Bank.


IMF, S&P give NZ tick


The International Monetary Fund has confirmed that the Government’s economic plan strikes the right balance between supporting growth and limiting public debt, Finance Minister Bill English says.

In its final staff report issued this morning, the IMF endorses New Zealand’s balanced and pragmatic economic management.

“Coming out the day before the Budget, this is a strong vote of confidence in the Government’s programme over the past four years,” Mr English says.

“It follows a string of encouraging economic figures, which shows the economy growing at 3 per cent last year, an extra 50,000 jobs over the past two years, falling unemployment and healthy consumer and business confidence.”

In particular, the IMF notes the New Zealand economy appears to have strengthened in the last few months of 2012, with subdued inflation and fiscal policy that strikes the right balance between supporting growth and limiting public debt growth.

The IMF says: “The benefits of the plan are many. First, it withdraws fiscal stimulus at the right time by making room for the expected increases in private sector and earthquake-related reconstruction spending.

“Second, it has improved the macroeconomic policy mix by reducing pressure on monetary policy.

“Third, it creates fiscal space to help the country deal with aging and health care costs that are expected to increase over the long-term, and to cope with any negative shocks that may cause a sharp reduction in domestic economic activity or potential liabilities associated with the banking sector.

“Last, it could help raise national savings, reduce the current account deficit, and limit the increase in foreign liabilities.”

The IMF also notes the New Zealand banks remain sound.

However, it says New Zealand’s longstanding external liabilities remain a risk, reflecting historically low household savings rates.

“The Government has acknowledged this as New Zealand’s largest vulnerability and we have a sound, long-term plan to help turn that around,” Mr English says.

“Our economic programme includes a large number of measures aimed at improving the competitiveness of businesses. They include increasing exports and innovation, improving skills and infrastructure, deepening the capital markets and sustainably developing our natural resources.

“We are making progress in all of these areas.”

We can look across the Tasman to see what a Labor government has accomplished there. We could expect the same, or worse performance from a Labour-led one here.

By contrast National has done exactly what it said it would do – protected people from the worst effects of the global financial turmoil, maintained or enhanced public services while reducing the costs and put us on track to return to surplus in 2014/15.

The IMF report isn’t he only one which gives National’s policies a tick.

Standards and Poors have put New Zealand in its top 10 of least risky countries.

New Zealand, and Australia, have entered credit rating agency Standard & Poor’s list of the world’s top 10 least risky countries.

The list, included in S&P Capital IQ’s latest quarterly Global Sovereign Debt Credit Risk Report, has New Zealand ninth, sandwiched between Australia and Austria. The report focuses on changes in the risk profile of sovereign debt issuers, with the intention of identifying key trends and drivers of change.

New Zealand and Australia are new entrants in the top 10 least risky list replacing Britain and the Netherlands. . .

Lower risk helps takes pressure of interest rates which is good for the economy.

The IMF report is here.

Confidence up, south leads


Business confidence is at its strongest since June 2007, when the domestic economy was starting to turn down ahead of the global financial crisis in 2008, according to the latest Quarterly Survey of Business Opinion from the New Zealand Institute of Economic Research.

The March quarter survey shows economic recovery broadening beyond Auckland and Christchurch, and no apparent impact from a string of corporate restructuring announcements in the first three months of the year, and the collapse of the Mainzeal construction group.

A net 23 percent of firms expect better trading conditions in the next quarter, up from 20 percent in the previous quarter, while a net 32 percent firms are optimistic in March, seasonally adjusted, compared with 19 percent previously. . .

A Grant Thornton International Business Report (IBR) shows southern businesses are more confident than those in the north.

. . . 16.8% of South Islanders are very optimistic about the economy in the next 12 months compared with 8.10% of the North Island.

Simon Carey, partner, Grant Thornton New Zealand Ltd, said that the gap narrows when talking about optimism overall with 65.2% of South Islanders being optimistic compared with 61.6% of North Islanders.

“These optimism figures are supported throughout the survey with South Island firms expecting to generate more revenue than North Island companies (68.4% to 66.7%), generate better selling prices (46.3% to 38.4%), employ more staff (44.2% to 34.3%), invest in plant and machinery (62.1% to 54.5%) and pay higher wages with 80% looking to increase salaries in line with inflation and above compared with 72.7% for the North Island. At the generous end, 22.1% of South Island firms will increase salaries at levels above inflation compared with 19.2% for the North Island.

 “Optimism in the South Island has been trending ahead of the north for some time as evidenced by the research which revealed that 45.3% of South Island firms employed extra staff in 2012 compared with 29.3% for the north. These employment figures were further reinforced by the fact 25.3% of North Island firms decreased their staff in 2012 compared with 16.8% for the south.” . .
Confidence is important not just for the businesses but for the wider economy. The more positive a business is, the more likely it is to increase investment and take on more staff.
The global outlook is still uncertain but these reports reflect the positive view the IMF has of our economy.

Very promising


Quote of the day:

“All I can tell you is the IMF is very supportive of what is being done by the Government in that respect.

“If you look at the numbers, if you look whether it is growth, whether it is employment, whether it is inflation, whether it is debt, overall it is very stable and it is also very promising.

“If you compare the potential growth rate of New Zealand and thee forecasts we have which I will not disclose because they will be disclosed in a couple of weeks time, it’s certainly a lot better than what we see in other parts of the world.

“An economy grew on the basis of its components – resources, manpower, capital, financial markets and policies and policies and the policies we believe are sound and solid.” IMF managing director Christine Lagarde.


The head of the International Monetary Fund, an organisation of 188 countries, has praised the direction of New Zealand's economy.

IMF says NZ has right balance


The International Monetary Fund has given New Zealand’ policies a tick of approval:

Finance Minister Bill English has welcomed the International Monetary Fund’s conclusion that the Government’s deficit reduction programme strikes the right balance between supporting growth and limiting public debt.

In its Preliminary Concluding Statement the IMF says New Zealand’s macro-economic policy stance is appropriate and that the monetary policy should continue to be the first line of defence against adverse shocks.

And it notes that economic growth appears to have strengthened in the last few months of 2012.

The IMF says: “We regard the planned pace of deficit reduction as striking the right balance between sustaining output growth and limiting public debt growth, and consistent with a policy setting where monetary policy plays a primary role in managing aggregate demand. The benefits of the plan are many.”

Mr English says the IMF’s assessment reflected the balanced and pragmatic approach the Government had taken with its economic programme over the past four years.

“The IMF notes there are many benefits to the Government’s plan. It is withdrawing fiscal stimulus at the right time by making room for private sector and earthquake-related reconstruction spending.

“It has also improved the macro-economic policy mix by reducing pressure on monetary policy. The programme also allows New Zealand to deal with aging and healthcare costs, and to cope with any future shocks.

“Finally, as the IMF concludes, the programme could help to increase national savings, reduce the current account deficit and limit the increase in New Zealand’s foreign liabilities.”

This was the subject of questions in parliament yesterday:

Hon STEVEN JOYCE: The IMF identifies two main near-term risks to the New Zealand economy. These are potential weaknesses or a worsening in the financial conditions in the world economy. The IMF also identifies risk in the New Zealand housing market, noting that supply bottlenecks persist and prices remain elevated. The IMF notes that New Zealand has room to respond to shocks with its monetary policy, and the level of public debt leaves room for fiscal policy response. The floating New Zealand dollar is also seen as an effective buffer. The IMF also says that our fundamentals have improved since the global financial crisis. Household and business balance sheets have strengthened, and banks have reduced their foreign funding and been assisted by a strong growth in deposits and slower growth in credit.

Maggie Barry: What does the IMF say about the value of the New Zealand dollar?

Hon STEVEN JOYCE: The IMF shares the Government’s view that the dollar is at a high value, largely because of factors outside our control. In particular, the strength of the New Zealand dollar is determined by the relative weaknesses of other currencies and other economies, many of which are printing money. As it says, if global monetary policy were to become less stimulatory, the exchange rate would likely depreciate over time. The IMF also notes that the Government’s return to surplus is easing pressure on the exchange rate by boosting national savings.

Hon David Parker: Does he agree with the IMF that “… New Zealand has run persistent current account deficits resulting in net external liabilities which are high by international standards. The deficit is expected to widen this year despite relatively strong terms of trade …”?

Hon STEVEN JOYCE: Yes, and I would note that those were largely due to the previous Government when the balance of payments deficit rolled out to over 8 percent of GDP. I really think the member should stop this line of questioning because all he does is point out that the Opposition are lousy economic managers.

Quite where the deficit would be had a Labour-led government still been in power is a very scary thought.

Commonwealth economies beating EU


The Commonwealth today is just a loose group of nations tied together by little more than historical links to Britain.

But its economic growth is better than that of the European Union:

Economic growth, in real terms, in the European Union (see definition below) has been falling decade upon decade since the 1970’s, and more sharply since 1973. . . . In contrast to the EU, economic growth in the Commonwealth has accelerated over the post 1973 period, as shown in chart 2.

The Commonwealth has already overtaken the EU for its percentage share of GDP and is on track to overtake the Eurozone:

The future looks even better:

The IMF produces forecasts for economic growth for the EZ and the Commonwealth for the next 5 years. Given the current crisis in the EZ the 2.7% annual average growth forecast might be thought optimistic. But optimistic or not it pales into insignificance compared with the continued growth expected in the emerging markets of the Commonwealth.

GDP Growth Forecasts (Real terms, average annual growth)

  2012 – 2017
Eurozone 2.7%
Commonwealth 7.3%

Source: IMF, World Economics calculations

For many years we thought New Zealand had been disadvantaged by Britain’s entry to the EU. Perhaps the opposite is the case:

Why did we join the Common Market in the first place? What was the knock-down argument used by Heath, Jenkins and the rest? Do you remember? The Commonwealth, they told us, was finished. We needed to be part of an alternative market, one that would grow.

At the time, the claim seemed sound enough. Between 1945 and 1973, Western Europe enjoyed spectacular growth, bouncing back from the artificial low of the Second World War. Britain and her Commonwealth, by contrast, were exhausted and indebted. Much of our postwar decline was caused by successive governments eroding their debts through inflation, unaware of, or perhaps untroubled by, the damage they were doing to our national competitiveness and productivity.

We can now see that our timing could hardly have been worse. We joined the EEC in 1973. Europe’s Wirschaftswunder came to an abrupt end with the oil shock of 1974, and never properly got going again. The expansion came instead in the Commonwealth markets from which Britain had just stood aside. . .

Given the economic weakness of Europe and strength in Asia, we are much better off with growing markets closer to home.

There might be opportunities for us in other developing markets we don’t yet have much trade with too even though we might at the moment have little in common except that historical accident which makes us all part of the Commonwealth.

Hat tip: I was led to the Telegraph through a blog, but have forgotten which. If it was yours, feel free to either leave a comment or email me and I’ll give credit where it’s due.

IMF approves govt plan


The International Monetary Fund has backed the government’s plan to return to surplus calling it ambitious but not overly dramatic:

IMF mission chief to New Zealand Brian Aitken told reporters in Wellington yesterday the global lending agency supports the National-led administration’s plan to get the books back in surplus as an appropriate balance between constraining public debt and protecting the economy.

“I don’t think we would want to see anything dramatic, but I don’t think the government needs to take dramatic action,” Aitken said. “It is a kind of ambitious deficit reduction plan.”

The IMF today released its preliminary concluding statement on New Zealand’s economy after a week-long mission, and Aitken said the “outlook for New Zealand looks good though it’s not great.”

The benefits of the government’s plan lay in withdrawing fiscal stimulus ahead of the earthquake reconstruction and private sector recovery, giving the government room to act in the event of another global shock, limiting pressure on interest rates to rise and helping contain an increase in the nation’s net foreign liabilities, the IMF said.

The IMF said the major risks to our economy are external ones.

It also said that New Zealanders have learned the lessons of the economic crisis:

New Zealand seems to have learned the economic lessons of the recent housing bubble and a “structural shift” in savings habits is under way, says the International Monetary Fund.

In an uncharacteristically upbeat assessment of the New Zealand economy, the IMF says New Zealand is emerging in reasonably good shape from the recent global financial crisis.

The Reserve Bank’s “accommodative” monetary policy receives the thumbs up, as does the government’s deficit reduction plan.

The IMF is still concerned about New Zealand’s long-term external liabilities, with a current account deficit going back to the mid-1970s, and says the only way this large external liability will be eased is by a higher level of savings.

But New Zealanders appear to be doing that, the IMF’s deputy divisional chief for the Asia Pacific region, Brian Aitken, says.

Finance Minister Bill English welcomed the IMF’s assessment:

In its preliminary concluding statement on New Zealand, published today, the IMF notes the Government’s medium-term deficit reduction plan is aimed at limiting the increase in public debt to guard against future economic risks and contributing to lowering external debt.

“In our view, this strikes the right balance between the need to limit public debt increases, while containing any adverse impact on economic growth during the recovery,” the IMF says.

Mr English says returning to surplus in 2014/15, while challenging, will make an important contribution to reducing New Zealand’s external debt and improving national savings.

“The IMF and others clearly recognise the focus of the Government’s plan in achieving this important goal,” he says.

“Getting back to surplus will help create a buffer against future global shocks and, as the IMF notes, it will limit pressure on monetary policy and therefore the exchange rate. This will be important in easing headwinds for exporters and reducing the current account deficit.

“That’s why Budget 2012 will be a zero budget or close to zero, in terms of extra spending over the next four years. We will do that because we need to get back to surplus so we’re not continuing to increase debt.”

We’ve been living on other people’s savings for too long but the message does seem to have got through with increased savings and lower debt.

It isn’t easy to get the balance between limiting debt and not constraining economic growth but the government is doing its best to get it right.

The IMF report is here.


IMF urges tax cut caution


A B- in Stage I Economics 30 years ago does not qualify me to argue against the IMF.


But surely tax cuts which allow people to keep a little more of their own money, some of which will be used to pay off debt and increase productivity are less inflationary than the over-taxation and redistribution which we’ve had for the last nine years.




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