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. ...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. ...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. While the New Zealand dollar is likely to range trade against the US dollar in the short term, we maintain that further kiwi weakness is likely over the medium term as the country s high elevated level of external indebtedness leaves the currency exposed to capital outflows amid weak dairy prices and a precarious property market.
...Despite our growth downgrade, we still expect the New Zealand economy to grow at a modest pace due to the support from the manufacturing and tourism sectors. One of the sectors contribut- ing to the pickup in New Zealand s real GDP in Q--- was the manufacturing sector, which expanded by --.- q-o-q in SAA terms after two consecutive quarters of contraction, marking its fastest pace of growth since Q---. We expect the manufacturing sector to remain in expansion as it continues to benefit from low global oil prices. The details of the Q--- GDP report showed that the food, beverage and tobacco manufacturing sub-segment led growth in the manufacturing sector (which has also benefitted from a strong services sector, particularly in wholesale trade), and the retail trade and accommodation sub-segments. Indeed, the services sector performed strongly in Q---, growing by -.- q-o-q in SAA terms, with the wholesale trade and the retail trade and accommodation sub-segments rising by -.- q-o-q and -.- q-o-q, respectively. ...Indeed, we expect the New Zealand trade-weighted index to weaken further in ----, despite depreciating by --.- since its peak in July ----. Data from Statistics New Zealand also showed that the total number of visitor arrivals to New Zealand continued to trend higher, growing by -.- y-o-y in October (on a six-month moving average basis), and we expect growth to remain robust.
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