Looking into the Crystal Ball: A Forecast and Some Risks for the Year Ahead: 28 January 2011

The Reserve Bank of New Zealand Bulletin, March 2011 | Go to article overview

Looking into the Crystal Ball: A Forecast and Some Risks for the Year Ahead: 28 January 2011


Reserve Bank Governor Alan Bollard today said the recovery is expected to pick up, but a wide range of scenarios could impact upon the economy in the year ahead.

Speaking to the Canterbury Employers' Chamber of Commerce this afternoon, Dr Bollard said the behaviour of people and businesses had changed significantly since the Global Financial Crisis, making economic forecasting particularly difficult.

"We have little from history to guide us about how enduring or deep these changes may be. In addition, the recovery has been rocky and fragile," he said.

Dr Bollard described the Global Financial Crisis as "a deep and damaging event".

"Even in New Zealand where we have been less affected, recovery has been slow and patchy. In fact 2010 was a disappointing year: we initially saw recovery happening, but the second half went unexpectedly soft (as it did in many OECD countries). During 2011 we expect the recovery to pick up and gradually become more secure."

Dr Bollard said several international dynamics could impact on people and businesses in the year ahead, including further economic 'gloom' in the US. However, it was just as possible the US could surprise us with economic strength in 2011, he said.

"In this scenario, the US dollar would presumably appreciate, taking some pressure off the New Zealand dollar and providing an improved opportunity to rebalance our economy towards export growth," Dr Bollard said.

Other international risks included sovereign debt reaching crisis point, emerging markets over-heating and an intensification of the commodity boom.

"New Zealand farmers are still recovering from the last commodity boom when some over-committed, and are still looking to reduce the debt they built up. …

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