New Zealand Country Risk Report

Providing comprehensive data and in-depth analysis of political, financial and economic risk.

Report includes: BMI's Core Views, 10-year Forecasts, BMI's Economic Risk Index, Political Stability and Risk Index, Long-term Political Outlook, Operational Risk Index, SWOT Analysis and Structural Economic Sections

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  • Understand and measure the political, business environment and operational risks to your company
  • Gain insight on emerging trends that could support, strengthen or disrupt your activities in the market
  • Benefit from 10-year macroeconomic forecasts and insight into the structural characteristics of the economy
  • Get the long-term political outlook and explore possible scenarios for change
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New Zealand Country Risk Report
Product Price
$1,195.00

Core Views

  • The New Zealand economy is experiencing a gradual deleveraging cycle, which will weigh on real GDP growth over the coming years. While still depressed oil prices will provide some support to corporate profit margins and economic activity, these positives will likely be offset by the joint deterioration in the dairy and construction sectors, which remain the two key pillars of the economy.

  • New Zealand's fiscal accounts remain in better health compared with most developed market economies. The New Zealand government has a strong commitment in keeping expenditures in check amid weak revenue collection, and we believe that it will continue to maintain its budget surplus, which is positive for the business environment as the private sector will be less crowded out by the government. Following a better than expected outcome in FY2015/16 (July-June), we are upgrading our FY2016/17 budget surplus forecast to 0.9% of GDP, from 0.4% previously.

  • Following a sixth 25bps cut in 14 months at its August 11 monetary policy meeting to a record low of 2.00%, we are forecasting the Reserve Bank of New Zealand (RBNZ) to cut its official cash rate (OCR) by another 25bps to 1.75% by Q117. We believe that the RBNZ will remain pressured to reduce interest rates over the coming months as it attempts to meet its medium-term inflation objective of 1.0-3.0% while also providing continued support to the domestic economy, which is still suffering from weak investment from depressed dairy prices.

  • Despite the gradual improvement since 2008, New Zealand's external accounts remain the economy's weak link and a persistent current account deficit poses risks of large-scale capital outflow. In order to correct these imbalances, we will need to see domestic savings rise sharply, while investment growth cools, which will undermine economic growth to some extent.

  • Although the New Zealand dollar is likely to range trade against the US dollar in the short term, we maintain our negative view on the currency over the medium term. New Zealand's high level of external indebtedness leaves the currency exposed to capital outflows as the dairy sector remains weak while the overvalued property market is looking increasingly precarious.

Major Forecast Changes

  • We have upgraded our FY2016/17 budget surplus forecast to 0.9% of GDP, from 0.4% previously, as the New Zealand government will continue to committed to reining expenditures in check amid weak revenue collection.

  • We have upgraded our 2016 average forecast for the New Zealand dollar to USD0.6700/NZD (versus USD0.6500/NZD previously) given its strength since the start of 2016, but we remain bearish against its trade-weighted partners over the medium-term.

Key Risks

We believe that there are two main risks facing the New Zealand economy:

  • Domestically, a continued surge in property prices could sow the seeds for an eventual sharp decline and associated financial instability owing to the large levels of household debt in the economy and the banking sector's exposure to the mortgage market. The property market is overvalued from a nationwide perspective, but key cities such as Auckland are experiencing what appear to be bubble-like price advances, which left unchecked could create financial instability.

  • Externally, a sharper than expected decline in Chinese import demand could lead to further declines in dairy prices and export volumes, significantly reversing the enormously beneficial upturn seen in New Zealand's terms of trade over recent years. So far, New Zealand's terms of trade have only deteriorated slightly, but a collapse in Chinese demand could weigh further on New Zealand's dairy export prices.

Macroeconomic Forecasts (New Zealand 2014-2017)
Indicator 2014 2015e 2016f 2017f
e/f=BMI estimate/ forecast. Source: National Sources, BMI
Real GDP growth, % y-o-y 3.0 3.0 2.3 2.5
Nominal GDP, USDbn 197.3 171.7 168.8 168.6
Consumer price inflation, % y-o-y, eop 0.8 0.1 0.0 1.0
Exchange rate NZD/USD, eop 1.28 1.46 1.49 1.59
Budget balance, % of GDP -1.1 0.3 1.0 0.9
Current account balance, % of GDP -3.1 -3.1 -3.0 -2.7
Executive Summary
5
Core Views
5
Key Risks
5
Chapter 1: Economic Outlook
7
SWOT Analysis
7
BMI Economic Risk Index
7
Economic Growth Outlook
8
Strong GDP Growth Unlikely To Last
8
GDP By Expenditure Outlook
9
TABLE: GDP GROWTH FORECASTS
9
TABLE: PRIVATE CONSUMPTION FORECASTS
10
TABLE: GOVERNMENT CONSUMPTION FORECASTS
10
TABLE: FIXED INVESTMENT FORECASTS
10
TABLE: NET EXPORTS FORECASTS
10
Fiscal Policy And Public Debt Outlook
10
Surplus To Be Maintained Amid Fiscal Discipline
10
Structural Fiscal Position
12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
12
Currency Forecast
13
NZD: Downside Forces Still In Play
13
TABLE: BMI CURRENCY FORECAST
14
Outlook On External Position
15
TABLE: MAIN EXPORT AND IMPORT PARTNERS
16
TABLE: MAIN EXPORTS AND IMPORTS
16
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
16
Monetary Policy
17
Steady OCR Unlikely To Last Long
17
Monetary Policy Framework
18
Chapter 2: 10-Year Forecast
21
The New Zealand Economy To 2025
21
Deleveraging Will Weigh On Growth
21
TABLE: LONG-TERM MACROECONOMIC FORECASTS
21
Chapter 3: Political Outlook
23
SWOT Analysis
23
BMI Political Risk Index
23
Domestic Politics
24
Panama Papers No Blow To Business Environment
24
TABLE: POLITICAL OVERVIEW
24
Long-Term Political Outlook
25
Stability To Prevail, But Not Without Challenges
25
Chapter 4: Operational Risk
29
SWOT Analysis
29
Operational Risk Index
29
Operational Risk
30
TABLE: DEVELOPED STATES - LABOUR MARKET RISK
30
TABLE: DEVELOPED STATES - LOGISTICS RISK
34
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK
37
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK
39
Chapter 5: BMI Global Macro Outlook
41
Global Macro Outlook
41
Summer Of Risk
41
TABLE: GLOBAL ASSUMPTIONS
41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
43
TABLE: MACROECONOMIC DATA & FORECASTS
45

Assess your risk exposure in New Zealand with our 100% independent forecasts assessing the pace and stability of this key market. Backed by trusted data from BMI Research's 52 million data point economic forecast model, this report will allow you to measure political, economic, business environment and operational risks in New Zealand with confidence.

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