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 declining 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 government returned its budget to a surplus in FY2014/15, and maintained its objectives to grow the country's budget surplus and reduce debt over the coming years during its FY2016/17 budget announcement in May 2016. Given the government's continued commitment to rein in expenditures over the coming years, we expect the country's budget surplus to be maintained, and we forecast a surplus equivalent to 0.4% of GDP in FY2016/17 (versus our estimate of 0.6% in FY2015/16).

  • Following cuts totalling 125 basis points (bps) since its June 2015 monetary policy meeting, we are forecasting the Reserve Bank of New Zealand (RBNZ) to cut its official cash rate (OCR) by another 25bps to 2.00% in 2016 as a result of a weak economy. With inflation remaining well below its medium-term target of 2.0%, the central bank will also be pressured to ease interest rates in an attempt to spur inflation.

  • 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.

  • The New Zealand dollar will likely weaken against the US dollar over the remainder of 2016, and we maintain our average 2016 forecast of USD0.6500/NZD (versus 2015's USD0.7000/NZD). We remain bearish on the NZD over the medium term as the country's elevated level of external indebtedness will leave the currency vulnerable to capital flight amid a weak agriculture sector and precarious property market.

Major Forecast Changes

  • We maintained our major forecasts as highlighted in our previous Q22016 Country Risk Report, and we highlight the key risks to our outlook below.

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 3.4 2.3 2.5
Nominal GDP, USDbn 197.3 171.7 163.7 159.6
Consumer price inflation, % y-o-y, eop 0.8 0.1 0.0 1.0
Exchange rate NZD/USD, eop 1.28 1.46 1.59 1.67
Budget balance, % of GDP -1.1 0.3 0.6 0.4
Current account balance, % of GDP -3.1 -3.1 -2.8 -2.5
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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