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Main Forecasts

Global developments will play a key role in New Zealand's economic prospects…

The main forecasts presented in this chapter are heavily influenced by the weak outlook for the global economy over the next few years. The world is currently facing the weakest conditions for economic growth since World War II. Such conditions represent a difficult environment for economies, such as New Zealand's, that need to shift the composition of their growth away from domestic demand towards exports in an effort to unwind imbalances such as a large current account deficit.

…and contribute to further declines in economic growth…

Figure 1.1 - Real GDP
Figure 1.1 - Real GDP.
Sources:  Statistics New Zealand, the Treasury

The New Zealand economy contracted in every quarter during 2008. Drought conditions were particularly intense over the 2007/08 summer and this contributed to low agricultural production over the first half of 2008, with significant declines in the export volumes of important categories such as dairy. Also, domestic demand was easing as the lagged impact of monetary policy took effect after an extended period of growth. The impact of the global slowdown began to play an increasingly significant role over the second half of 2008 and into 2009.

New Zealand is forecast to experience a continued period of weak economic growth over the next couple of years as the economy continues to be affected by low global growth and the need to unwind past imbalances. Real production GDP is estimated to have declined by 0.9% in the year to March 2009, with a further 1.7% decline forecast for the March 2010 year. This is materially lower than both the main and downside outlooks that were presented in the December Forecasts. In addition, the recovery from current weakness in New Zealand and abroad is expected to be relatively drawn-out. Real GDP growth is expected to lift to around 1.8% in 2011 and just below 3% in 2012 before reaching 4% in 2013.

Quarterly growth is forecast to remain negative through to the September quarter of 2009. The current forecast means that by September 2009 the level of real GDP will be 3.5% below its level at the end of 2007. This is a slightly smaller decline than the recession of the mid-1970s. However, faster population growth relative to that in the mid-1970s means that the decline in GDP per capita is forecast to be larger, with the level of real GDP per capita 5.2% lower in December 2009 compared with two years earlier.

…as the slowdown is felt throughout the economy

The effects of the slowdown have been felt over the first part of 2009 and are likely to intensify as the year progresses. Firms can expect a continuation of weak demand, both domestically and abroad. Their profits are forecast to fall and they are likely to exercise caution when making investment and employment decisions. Households have experienced reduced job security and unemployment is likely to rise further over the next 18 months. Combined with constraints on borrowing, this will place pressure on household spending. Government will be affected through lower tax revenue, increased welfare payments and higher debt-servicing expenses as debt grows and it increasingly needs to borrow to fund its expenditure.

Table 1.3 - Economic forecasts [1]
(Annual average % change, March years) 2008
Actual
2009
Forecast
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
Private consumption 3.2 -0.4 -1.3 -1.5 -0.1 1.9
Public consumption 4.3 3.6 3.3 2.8 1.9 1.5
Total consumption 3.5 0.5 -0.3 -0.5 0.4 1.8
Residential investment 4.3 -25.2 -22.7 7.1 18.7 20.6
Non-market investment 7.4 15.9 5.2 -2.2 -3.6 3.8
Market Investment 4.7 -5.0 -23.4 3.1 18.4 11.5
Total investment 4.3 -9.6 -21.0 6.0 17.4 12.8
Stock change[2] 0.8 0.2 -1.0 0.5 0.1 -0.1
Gross national expenditure 4.4 -1.9 -5.8 1.3 3.9 4.2
Exports 2.9 -4.2 -1.5 2.4 4.1 6.0
Imports 9.6 -3.1 -14.3 0.6 7.3 6.4
GDP (expenditure measure) 2.3 -1.8 -1.9 2.0 2.9 4.0
GDP (production measure) 3.1 -0.9 -1.7 1.8 2.9 4.0
Real GDP per capita 2.1 -1.9 -2.7 0.8 1.9 3.1
Nominal GDP (expenditure basis) 7.4 0.7 -2.7 3.7 4.5 5.7
GDP deflator 4.9 2.5 -0.7 1.7 1.5 1.6
Output gap (% deviation, March quarter) 1.9 -0.9 -1.9 -2.2 -1.5 0.0
Employment[3] 0.8 0.7 -3.4 -2.2 1.8 3.5
Unemployment[4] 3.7 5.0 7.5 7.5 6.3 5.1
Wages[5] 4.6 4.2 2.2 1.2 1.3 1.6
CPI inflation[6] 3.4 3.0 2.4 1.7 1.2 1.6
Merchandise terms of trade[7] 8.4 0.9 -11.8 0.8 3.6 2.4
Current account balance
  - $billion -14.2 -15.4 -12.0 -9.8 -10.3 -11.1
  - % of GDP -8.0 -8.6 -6.9 -5.4 -5.5 -5.5
TWI[8] 71.9 53.7 49.5 52.0 52.1 52.1
90-day bank bill rate[8] 8.8 3.7 2.5 2.5 3.8 5.4
10-year bond rate[8] 6.3 4.6 5.2 5.2 5.6 5.8

Notes:

  • [1] Forecasts finalised 18 April 2009
  • [2] Contribution to GDP growth
  • [3] Household Labour Force Survey, full-time equivalent employment
  • [4] Household Labour Force Survey, percentage of the labour force, March quarter, seasonally adjusted
  • [5] Quarterly Employment Survey, average ordinary time hourly earnings, annual percentage change
  • [6] Annual percentage change
  • [7] SNA basis, annual average percentage change
  • [8] Average for the March quarter

Sources: Statistics New Zealand, Reserve Bank of New Zealand, the Treasury

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