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Half Year Economic and Fiscal Update 2012

Economic Developments

Figure 1.3 - Recovery in New Zealand real GDP compared to past slowdowns
Figure 1.3 - Recovery in New Zealand real GDP compared to past slowdowns.
Sources:  Statistics New Zealand, RBNZ, the Treasury

Economic recovery has been slow...

The New Zealand economy has experienced only a slow and gradual recovery from the 2008/09 recession.

This performance reflects the net impact of the major forces that have influenced activity in the economy over the past few years. These are:

  • slower growth in the global economy since the onset of the global financial crisis, with associated impacts on funding costs and the exchange rate
  • changes in household and firm behaviour following the build-up of debt over the mid-2000s
  • the Canterbury earthquakes and their impact on sentiment and activity, and
  • stimulatory fiscal and monetary policies.
Figure 1.4 - International real GDP comparisons
Figure 1.4 - International real GDP comparisons.
Sources:  Haver Analytics, the Treasury

The release of revised GDP data since the Treasury finalised the 2012 Budget Update forecasts reinforces the picture of the muted recovery from recession.

At the time of the 2012 Budget Update, the expenditure and production measures of GDP painted unusually divergent pictures of the pace of growth in the economy. This difference has since been revised away, and has influenced our judgement over the pace of potential economic growth over the coming years. (See ‘GDP Growth in the Half Year Update' box for further details.) keeping with much of the developed world 

The New Zealand economy has not been alone in experiencing a slow recovery from the global financial crisis over recent years. A number of other OECD economies have experienced slower recoveries - notably the UK and the euro area - and are yet to surpass their pre-crisis levels of real output.

Solid growth in the first half of 2012 was influenced by temporary factors

Data released since the Budget Update was finalised show that the New Zealand economy continued its recovery from the 2008/09 recession in the first half of 2012. Real GDP rose by 1.6% in the six months to the end of the June quarter.

This strength reflected some temporary factors, including favourable growing conditions for the agriculture sector, as well as a recovery in residential investment.

The economy appears to have gone through a weak patch in the September quarter, reflecting a weak outturn from the labour market and an observed drop in confidence and activity indicators in the business sector. However, the early signs from the December 2012 quarter point to a pick-up in activity.

The Treasury's outlook for the most likely path for the economy over the forecast horizon is based on judgements on the impact and net interaction of the main forces that were identified earlier.

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