Global economy continues to recover…
The outlook for world growth has generally been revised up as the recovery from the global financial crisis has progressed, although there have been some set-backs recently. The recovery is being driven by emerging economies, in particular China and other Asian countries, with additional benefits for New Zealand via Australia. Activity in the major developed economies has been slower to rebound as they were more directly affected by the global crisis and their economic challenges are more entrenched. Temporary shocks have also adversely affected economic activity, in particular the Queensland floods in Australia and the earthquake in Japan. These events are expected to reduce growth in the short term, but rebuilding in Australia and Japan will boost it subsequently.
- Figure 1.3 - Trading Partner Growth
- Source: International Monetary Fund, The Treasury
Growth in our main trading partners in calendar 2010 was estimated to be 4.6%, a rapid recovery from a 0.5% decline in output in 2009 (Figure 1.3). The outlook for 2011 is for 3.7% growth, taking account of the adverse events above, before increasing to 4.4% in 2012 and reverting to a trend of just above 4.0% thereafter. These figures take account of the increasing share of New Zealand's trade directed to the faster-growing Asian economies.
Notwithstanding this positive headline picture, there remains an elevated level of risk around global growth. While there are some upsides, on balance the risks are weighted to the downside for the forecast period as a whole. As a result, the international economy remains a source of potential downside risk to New Zealand, with the possibility of rising global imbalances causing increased policy tension, the need for significant structural and fiscal policy change in many developed economies, continued financial difficulties in a number of peripheral European economies, and the possibility of higher oil prices. Some of these risks are explored further in the Risks and Scenarios and Fiscal Risks chapters.
