Magazine article New Zealand Management

Economics: Growth? What Growth?

Magazine article New Zealand Management

Economics: Growth? What Growth?

Article excerpt

Byline: Bob Edlin

To nobody's surprise, the Government's 2012/13 Budget affirmed a surplus would show up in its books in 2014/15. Or rather, the Treasury's projections did the affirming, and the projections were critically based on the officials' GDP growth forecasts.

The economy had continued its recovery from the 2008/09 recession over the past year, registering 1.1 percent growth in 2011, they said. Strong merchandise terms of trade, good farming conditions, the Rugby World Cup and the Government's accommodating fiscal stance (designed to underpin demand in the wake of the global financial crisis and devastating natural disasters) had done the trick, and monetary policy had been supporting activity through low interest rates.

The pace of overall GDP growth would continue strengthening, to 2.6 percent and 3.4 percent in the years ending March 2013 and 2014 respectively (and the pace of growth would be sustained at around three percent beyond that). The growth will be helped by a substantial employment and income impulse from the Christchurch rebuild, the maintenance of historically low borrowing costs and, for primary industry exporters, a continuing solid demand for our produce from key trading partners.

Not all sectors of the economy were expected to benefit equally from this growth. In the first part of the forecast period, non-commodity exporters were expected to be bruised by the strong exchange rate: which will trim their NZ dollar earnings. The tourism sector, in particular, was expected to struggle against weak income growth in several countries that traditionally have been key sources of inbound tourists, the loss of infrastructure in Christchurch, and the effects of more New Zealanders taking advantage of the high value of the currency to holiday abroad instead of at home. The broader retail sector is expected to struggle, too, as householders moderate their spending and try to trim their debts.

Notwithstanding those assessments of the outlook for manufacturers, retailers and the tourism sector, the Treasury is more bullish than other forecasters. The Trans Tasman newsletter contrasted the official outlook with the bleaker picture painted by the Institute of Economic Research's principal economist Shamubeel Eaqub. …

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