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New Zealand upbeat about economic future, but with risks

Update: December, 08/2016 - 10:42
New Zealand central bank governor Graeme Wheeler is upbeat about the economy, but warns of uncertainties ahead. — AFP/VNA Photo
Viet Nam News

WELLINGTON — New Zealand’s central bank governor painted a glowing picture of the economy on Thursday just days after Prime Minister John Key resigned, but warned of uncertainties ahead.

In a speech to an economic development conference, Graeme Wheeler said that "in many respects the economy is performing well".

"Relative to the trends over the past two decades, we are experiencing stronger economic growth, lower inflation, and a lower unemployment rate."

His forecast came as the country prepares for the election of a new prime minister following Key’s sudden departure this week for family reasons.

Current Finance Minister Bill English, who guided New Zealand through the global financial crisis, is expected to replace him and maintain current economic policies.

Wheeler said that in the absence of major unanticipated shocks, "prospects look good for continued strong growth over the next 18 months", driven by construction spending, migration, tourism and "and accommodative monetary policy".

But while the Achilles heel of many New Zealand expansions - a large current account deficit - has not eventuated, Wheeler cautioned that not everything was positive.

Economic growth, now entering its eighth year, was weaker than other post World War II expansions, gross domestic product growth on per capita basis was slow and labour productivity growth disappointing, he said.

"House price inflation is much higher than desirable and poses concerns for financial stability, and the exchange rate is higher than the economic fundamentals would suggest is appropriate," he added.

The central bank last month cut its benchmark interest rate to a record low of 1.75 per cent, citing New Zealand’s stubbornly low inflation as a key reason.

Inflation has been below the bank’s 1-3 per cent target for the past two years.

New Zealand’s economic growth remained strong at 3.6 per cent in 2015/16, despite an international downturn in dairy, one of its major exports.

Wheeler said the low point for inflation "has probably passed" and he expected figures due next week would show it moving back within the target band.

However, New Zealand would enter 2017 with considerable political and economic uncertainties, he warned.

"The greatest threat to the expansion lies in possible international political and economic developments and their implications for the global trading environment," he said.

"The main domestic risk - and one that could be triggered by developments offshore - is a significant correction in the housing market."

He said monetary policy had been made more challenging by low global inflation and zero or negative interest rates in several major economies.

"This has put downward pressure on our interest rate structure and contributed to asset price inflation and upward pressure on the New Zealand dollar. This trend may finally be turning." — AFP

 

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