Brian Gaynor writes:
There are several reasons New Zealand’s economic outlook is more comparable to the early 1950s and early 1970s than the past 40 years. These include:
Terms of trade: The country’s terms of trade index rose 7.5 per cent, to 1356, in September, the highest level since December 1973. Australia’s terms of trade have fallen 18 per cent this year.
Dairy: GlobalDairyTrade auction prices have appreciated 52 per cent over the past twelve months and dairy exports surged 49.1 per cent in the three months ended October 31 compared with the same three months in the previous year. Recent surveys show that farmers have significant investment intentions, an important feature of New Zealand’s strong economic performance in the 1950s.
China: It is now New Zealand’s largest export market and is expected to continue to grow by more than 7 per cent a year.
Christchurch rebuild: The inner-city rebuild programme should gather momentum when construction begins on the justice and emergency services precinct from March next year, to be followed by the health precinct in the June or September quarter. These projects, which are mainly funded by the Crown and city, should encourage private sector investment in the inner city.
Migration: The country has had strong net migration inflows in recent months and had total net migration of 17,490 for the 12 months ended October.
This figure is expected to increase steadily over the next few months, and Statistics New Zealand figures show more than 90 per cent of new arrivals settle in Auckland.
Housing: The strong migration inflow should continue to boost the housing market and housing construction, particularly in Auckland.
Government finances: The Crown’s financial deficit is falling and the Key Administration may announce tax cuts in May’s budget. However, large expenditures on the Christchurch rebuild may restrict this option.
Confidence: Business, consumer and farming confidence are all at, or near, all-time highs.
Companies: Most domestic companies have strong balance sheets and plenty of capacity to expand and invest. Rod Drury and Xero have lifted the ambitions of New Zealand companies and we now have a large number of young entrepreneurs with aggressive global aspirations.
KiwiSaver: Last but not least is KiwiSaver, which is giving us a pool of private permanent funds that can be partially invested in the domestic productive sector. KiwiSaver ought to have the same positive effect on the domestic economy as Australia’s compulsory superannuation has had on its economy.
In view of these factors the outlook for the New Zealand economy is exciting, the best it has been since the early 1970s.
I’m not quite as positive as Brian Gaynor, but I do agree that the fundamentals are all looking good.Tags: Economy