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Budget 2013 Home Page Budget Economic and Fiscal Update 2013

International Economic Outlook

Global growth steady, while downside risks recede

As the global financial crisis clearly illustrated, global economic conditions are an important force impacting on the New Zealand economy. The trading partner growth outlook is similar to that underpinning forecasts in the Half Year Update. New Zealand's main trading partners, weighted by export share, are expected to grow 3.4% in the 2013 calendar year. This is slightly slower than 2012, primarily owing to slower Australian growth as mining investment moderates (Table 1.2). Trading partner growth is then expected to pick up to just below 4.0% by 2017 (Figure 1.3).

Figure 1.3 - Top-16 trading partner growth
Figure 1.3 - Top-16 trading partner growth.
Sources: IMF, Haver Analytics, the Treasury

While the central outlook for trading partner growth remains broadly unchanged from the Half Year Update, the risks to the outlook have become more balanced. Policy actions by central banks, including the willingness of the European Central Bank to purchase government bonds, additional quantitative easing in the US and additional monetary easing in Japan, have all contributed to a reduction in extreme downside risks. There are also upside risks to the outlook, some of which are associated with the impacts of increased monetary easing in Japan and the US, but also a stronger-than-expected cyclical rebound in global demand.

However, risks are still slightly skewed to the downside. The euro area remains weak, with the region's activity expected to contract again in 2013. The bailout of Cyprus in March shows policy-makers are still only “managing through” the crisis, while the underlying issues of high government debt and a lack of competitiveness in the peripheral economies remain. Other downside risks include a greater-than-expected impact on growth from the automatic government spending cuts in the US, as well as a large housing market correction in China. More detail on the risks to the global outlook can be found in the Risks and Scenarios chapter.

Table 1.2 - Trading partner growth (calendar years)
2013 weights 2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Australia 27% 3.6 2.7 2.9 3.0 3.0 3.0
China 17% 7.8 8.0 7.6 7.3 7.0 7.0
United States 11% 2.2 1.7 2.4 2.5 2.5 2.5
Japan 9% 2.0 1.0 1.4 1.1 1.0 1.0
Euro area 8% -0.5 -0.4 1.0 1.2 1.3 1.4
United Kingdom 4% 0.3 0.7 1.4 1.8 2.0 2.0
Canada 2% 1.8 1.6 2.3 2.4 2.5 2.5
Other Asia* 23% 3.8 4.3 4.7 5.0 5.0 5.0
Trading Partner Growth (TPG) 100% 3.5 3.4 3.8 3.8 3.8 3.9
TPG - Consensus (April 2013)   3.5 3.5 3.9 4.1 4.1 4.0
TPG - IMF WEO (April 2013)   3.5 3.5 4.1 4.2 4.3 4.4

* South Korea, Taiwan, Hong Kong, Singapore, Malaysia, Indonesia, Thailand, Philippines, India

Sources: IMF, Haver Analytics, Consensus Economics, the Treasury

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