Potential new risks for New Zealand’s economy

In previous reports, New Zealand’s economy has largely been considered one of the safest economies after emerging from the Global financial crisis largely unscathed. However, economists are now beginning to suggest that the growth boom could be wearing off and state that New Zealand’s economy could be on the rocks, once temporary growth factors disappear. This could cause a significant slowdown for this island nation.

In previous reports, New Zealand’s economy has largely been considered one of the safest economies after emerging from the Global financial crisis largely unscathed. However, economists are now beginning to suggest that the growth boom could be wearing off and state that New Zealand’s economy could be on the rocks, once temporary growth factors disappear. This could cause a significant slowdown for this island nation.

The top economists within the country have announced that the booming economy, once the envy of the world with an unemployment rate of 5.6% (about the same as Texas but much better than California) and a GDP growth rate of 3.3% (which should be where America is at with some simple policy changes which America refuses to implement), could be unsustainable. The concerns were raised within a panel containing some of the country’s top economists in Auckland, who suggested that most residents within New Zealand are not aware of just how much the economy relies on one-off assistance in the form of the Christchurch rebuild, and how quickly the growth could slow once these boosts dissipate.

The Recent Economy Growth Boost

The chief economist of Westpac, Dominick Stephens, suggested that the recent growth within New Zealand has largely been fueled by:

* The earthquake rebuild that is taking place in Canterbury

* Lower interest rates

* Surge in net migration which established a ten year high this June

Stephens argued that when the rebuild in Canterbury comes to an end, locals will be surprised by the significant downturn.

More New Zealanders Staying Home

The strength of the net migration, which Stephens suggested has arisen due to fewer New Zealanders deciding to move to Australia, whilst greater numbers return from their movement across the Tasman, is unlikely to sustain the same levels for very long. One day, he estimates that Australia will make a comeback, and at this point, they are forecasting a net migration of zero for 2018. Furthermore, the current numbers suggest that at one point, the interest rates within New Zealand will grow large enough to ‘crush the housing market’, and many top economists are concerned that these predictions could all take place at the same time.

The Future for New Zealand

Senior economist for ANZ suggested that New Zealand are unlikely to experience a soft economic landing, and that although growth is expected to fall, people should bear in mind that a 4% increase is difficult to sustain. She believes that the government should be pleased with a 2.5-3% increase in the coming years. Furthermore, senior economist for BNZ, Craig Ebert, announced that there had been further enquiries stemming from overseas about the election. In his commentary, he suggested that if the government does change, a different economic agenda may arise. National’s new policy to improve subsidies for first-time buyers of homes, for example, could only have a small effect upon the housing market. At this point, the LVR restrictions have not had an impact comparable to the Reserve Bank forecast, although there has been a reduction in sales turnover.