New Zealand's economic recovery continues
Economic activity over the first half of the year was disrupted by the Canterbury earthquake of 22 February and subsequent aftershocks. However, the economic disruption was not as severe as we had anticipated and real GDP is, at the end of the June quarter, higher than we forecast in the Budget Update (Figure 1.4). The increased strength in the economy is expected to persist over the second half of the year. Export prices are high, business confidence remains firm and the Rugby World Cup has provided some temporary support for consumption and for services exports. We expect growth of 2.3% in the year ending March 2012, up from 1.8% in the Budget Update.
- Figure 1.4 - Real production GDP
- Sources: Statistics New Zealand, The Treasury
In the year ending March 2013, growth rises to 3.4%, led by the construction work in Canterbury and the investment required to support it. Compared with the Budget Update growth is slower, reflecting the weaker world outlook and a more gradual pick-up in construction activity. The level of spare capacity in the economy is substantially absorbed by the middle of 2013 and growth moderates thereafter as economic growth returns to its sustainable or potential growth rate. Table 1.2 summarises our economic forecasts.
Measured in current prices, expenditure in the economy is in line with the Budget Update forecasts. Nominal GDP is expected to grow to $209 billion in the year ending March 2012, $2.5 billion above our Budget Update forecast. However, growth in the year ending March 2013 is now lower than in the Budget Update and GDP in current prices is $0.9 billion lower in the year ending March 2013 than it was in the Budget Update. In the year ending March 2015, we forecast GDP in current prices to be $0.3 billion higher than in the Budget Update. The cumulative impact of these revisions across the four years ending March 2015 is to raise nominal GDP by $1.7 billion.
The Canterbury rebuild will provide a significant boost to output and employment over the next few years, providing a powerful offset to the effects of the weaker world economy and, because much of the rebuild cost is met from insurance claims, there is a high degree of certainty that this activity will occur, although the precise timing of the rebuilding work is much less clear.
The earthquake rebuild is likely to take longer to begin than initially expected. This is primarily the result of continuing seismic activity in Canterbury and the implications of this activity for the reassessment of land damage and resulting building standards. So far, earthquake-related building consents remain at a low level. Nationally, the market for new houses is showing signs of a recovery from its trough. Over the past year, an estimated 12,000 to 13,000 houses were built, which is well below the 20-year average of around 22,000 houses built per year.
As well as taking longer to begin, the rebuild is expected to be larger and take longer to complete and we have revised our estimate of the extent and cost of damage up to $20 billion from $15 billion. The box on page 13 provides an update on the impacts of the Canterbury earthquake. These revisions, combined with the cyclical rise in residential building activity, and the repair of leaky buildings, result in this sector contributing around 1.5 percentage points to GDP growth in each of the next two years to December 2013 as activity rises to its peak. A high level of activity is maintained through to the end of the forecasts.
|
(Annual average % change, March years) |
2011 Actual |
2012 Forecast |
2013 Forecast |
2014 Forecast |
2015 Forecast |
2016 Forecast |
|---|---|---|---|---|---|---|
| Private consumption | 2.0 | 2.1 | 2.2 | 2.9 | 2.9 | 2.2 |
| Public consumption | 3.8 | 1.8 | -1.5 | -0.2 | 0.5 | 0.7 |
| Total consumption | 2.5 | 2.0 | 1.3 | 2.2 | 2.4 | 1.9 |
| Residential investment | 2.3 | -8.4 | 37.6 | 34.9 | 14.2 | 5.5 |
| Market investment | 5.0 | 1.1 | -8.8 | 3.2 | 5.7 | 3.4 |
| Non-market investment | 7.8 | 8.9 | 9.8 | 10.3 | 4.1 | -0.3 |
| Total investment | 5.9 | 5.0 | 16.2 | 14.4 | 6.4 | 1.2 |
| Stock change2 | 1.4 | -0.5 | 0.2 | 0.1 | 0.2 | 0.2 |
| Gross national expenditure | 4.5 | 2.1 | 4.8 | 5.4 | 3.7 | 1.9 |
| Exports | 1.9 | 2.8 | 2.3 | 1.9 | 1.7 | 1.8 |
| Imports | 10.5 | 3.6 | 6.1 | 8.0 | 4.3 | 0.7 |
| GDP (expenditure measure) | 1.9 | 2.0 | 3.2 | 3.3 | 2.8 | 2.4 |
| GDP (production measure) | 1.6 | 2.3 | 3.4 | 3.3 | 2.9 | 2.4 |
| Real GDP per capita | 0.5 | 1.5 | 2.6 | 2.4 | 1.9 | 1.5 |
| Nominal GDP (expenditure measure) | 5.7 | 5.5 | 4.7 | 5.8 | 5.1 | 4.5 |
| GDP deflator | 3.7 | 3.5 | 1.5 | 2.4 | 2.2 | 2.1 |
| Output gap (% deviation, March year)3 | -0.7 | -0.8 | -0.2 | -0.1 | -0.1 | -0.2 |
| Employment | 1.2 | 1.8 | 1.5 | 1.5 | 1.4 | 1.3 |
| Unemployment4 | 6.5 | 5.8 | 5.2 | 4.9 | 4.7 | 4.7 |
| Nominal wages5 | 2.6 | 4.0 | 3.3 | 4.2 | 4.1 | 4.0 |
| CPI inflation6 | 4.5 | 2.8 | 2.2 | 2.4 | 2.5 | 2.7 |
| Merchandise terms of trade7 | 9.9 | 3.2 | -1.4 | 1.0 | 1.1 | 0.3 |
| Current account balance | ||||||
| $billion | -7.196 | -5.0 | -7.9 | -12.6 | -15.6 | -17.6 |
| % of GDP | -3.6 | -2.4 | -3.6 | -5.4 | -6.4 | -6.9 |
| Net international investment position | ||||||
| % of GDP | -68.7 | -68.6 | -69.1 | -70.8 | -73.8 | -77.6 |
| TWI8 | 67.2 | 70.0 | 70.1 | 69.6 | 67.2 | 63.3 |
| 90-day bank bill rate8 | 3.0 | 2.9 | 3.7 | 4.3 | 5.0 | 5.3 |
| 10-year bond rate8 | 5.6 | 4.4 | 4.6 | 5.0 | 5.2 | 5.4 |
Notes:
- Forecasts finalised 26 September
- Contribution to GDP growth
- Estimated as the percentage difference between actual real GDP and potential real GDP
- Household Labour Force Survey, percent of the labour force, March quarter, seasonally adjusted
- Quarterly Employment Survey, average ordinary-time hourly earnings, annual percentage change
- Annual percentage change
- System of National Accounts (SNA) basis, annual average percentage change
- Average for the March quarter
A longer time series for these variables is provided on page 118.
Sources: Statistics New Zealand, Reserve Bank of New Zealand, The Treasury
