WELLINGTON: New Zealand’s economy batted away some curly political curveballs of 2016 to end the year on a high note, with its twin planks of a booming construction sector and rampant tourism soon to be joined by a resurgent dairy industry. Government data last week showed the economy humming along, with September gross domestic product up 3.5% from a year earlier. Construction is the centrepiece, with a $37 billion pipeline of work estimated for the next six years, largely to meet Auckland’s housing shortfall. At the same time, record migration has contributed to higher household spending, combined with throngs of tourists – both locals and foreigners – travelling the country and opening their wallets.
That’s helped out local retailers in an environment where consumers are increasingly looking online for cheaper deals, and several high-profile chains have fallen over this year including Dick Smith Electronics, Pumpkin Patch and Wild Pair. It’s also got the government thinking hard about how to get its share of the tax take from online purchases, although it’s only managed to make it to online services with what’s been dubbed the Netflix tax. “We’re in a pretty good spot and, if you think more broadly, the government books are looking pretty decent, so if you’re looking from the outside, New Zealand’s not a bad place to be in the end, hence we have got interest from offshore in investing and people wanting to come here,” ASB Bank rural economist Nathan Penny says. “That growth is still feeding on itself continuing well into next year if not into 2018.”
That’s a far cry from the start of the year when a slump in global dairy prices had people on high alert over whether a slowdown in the rural economy would seep into the urban centres and potentially put the squeeze on the nation’s lenders. Instead, dairy prices recovered halfway through the year as production in Europe and North America slowed down and ASB is now picking Fonterra Cooperative Group will pay farmers $6.50 per kilogram of milk solids for the current season, past the nominal breakeven point and up from $3.50/kgMS in the 2016 season. “It’s certainly been a year of two halves – it was pretty tough conditions over the first half and now we’re seeing a lift at last,” Mr Penny said. “Farms are looking at a season where they will make some money.”
Surprises came thick and fast on the political front, including the unexpected British vote in favour of quitting the EU, a rising tide of populism that Republican candidate Donald Trump rode on to secure the White House, and capped off with the exit of New Zealand’s dominant prime minister, John Key. “This year’s been the year for upsets on that front,” Mr Penny said. Although the Brexit vote initially sent shockwaves through financial markets, including an 11% slump in the British pound to a 30-year low on the day, the reaction to Mr Trump’s victory stoked expectations the US Federal Reserve will finally start hiking interest rates more aggressively, boosting global demand for the greenback and taking some of the pressure off New Zealand’s Reserve Bank, where governor Graeme Wheeler has struggled to offset the deflationary impact of a strong kiwi dollar.
