New Zealand: Staff Report for the 2012 Article IV Consultation—Supplementary Information

The New Zealand economy continues to grow at a modest pace. The 2012 Article IV Consultation reports that domestic demand has remained soft as households and businesses continue to deleverage amid a weak housing market and an uncertain outlook. Executive Directors endorse that output growth should pick up somewhat in 2012 as earthquake reconstruction spending is expected to gain pace. High household debt is likely to weigh on the growth of private consumption as households will need to save to strengthen their balance sheets.

Abstract

The New Zealand economy continues to grow at a modest pace. The 2012 Article IV Consultation reports that domestic demand has remained soft as households and businesses continue to deleverage amid a weak housing market and an uncertain outlook. Executive Directors endorse that output growth should pick up somewhat in 2012 as earthquake reconstruction spending is expected to gain pace. High household debt is likely to weigh on the growth of private consumption as households will need to save to strengthen their balance sheets.

Staff wish to highlight some developments supplementary to the Staff Report issued to the Board last week.

  • Exchange rate. Since end-April the New Zealand dollar has weakened on a trade weighted basis by about 5 percent. Contributing factors include an increase in global financial uncertainty and a corresponding waning in risk appetite, and the recent decline in New Zealand commodity prices and domestic interest rates.

  • Budget. The 2012 Budget released on May 24 was broadly in line with the fiscal discussion in the staff report, with a return to budget surplus by 2015. The Prime Minister underscored the government’s commitment to these targets, but signaled a willingness to push back the path of deficit reduction if the European financial crisis proves worse than anticipated.

  • Revisions to GDP. The national statistical office recently released a revision to the GDP data, with historical GDP readings being updated and revised to incorporate new industry standard classifications. After the revision, growth for calendar 2011 came to 1.1 percent, down from a previously published figure of 1.4 percent.

New Zealand: 2012 Article IV Consultation: Staff Report; Staff Supplement; Public Information Notice
Author: International Monetary Fund