WELLINGTON: In the past year, the New Zealand economy has developed pretty well. The real GDP grew 0.8 percent to 0.9 percent quarter-on-quarter in the last four quarters, noted Commerzbank. The economy is gaining from high construction activity, immigration and expansionary monetary policy of RBNZ. Exports, in the previous quarter, also grew more markedly, owing to a rebound in commodity prices. This signifies that the growth outlook continues to be promising.
The Reserve Bank of New Zealand governor Graeme Wheeler sees the biggest risks for the economic growth on an international level. In particular an additional rise in protectionist tendencies might impact the open economy of New Zealand significantly, stated Commerzbank. Concerns regarding the low milk price have calmed down a bit. The price of milk increased significantly in recent times; however, it continues to be at low levels by historical comparison. Prices of milk are generally expected to stay under pressure because of the globally high production levels. Furthermore, the central bank stated that milk prices are subject to solid price fluctuations and thus it cautions against depending on a sustainable price rise too early on. Therefore, New Zealand’s terms of trade would continue to suffer from low milk prices and thus hurt the growth outlook in spite of strong domestic demand. After all, the domestic dairy sector accounts for just over one quarter of New Zealand’s exports.
However, the main concern of the central bank is inflation as it continues to be low in spite of fair growth. The expansionary monetary policy put into effect by several central banks has exerted upward pressure on the exchange rate of the New Zealand dollar, which in turn is hurting the inflation rate through lower prices of import.Inflation has stayed below the central bank’s 1 percent to 3 percent target range since late 2014. In 2016, the central bank cut its key interest rate by a total of 75 basis points and now anticipates inflation to come back to the mid-point of its target range in the coming 18 months.
