The Strategist

New Zealand’s Risk Concern - Australia

04/09/2015 - 20:59

Robust net migration is the main stimulating factor for the economic growth.

New Zealand’s Risk Concern - Australia
The year 2014 was marked with 3.5% growth in New Zealand’s GDP. The net migration plays a vital role in adding stimulus to the economy and is therefore pumping huge investments in infrastructure. The elements stimulating the New Zealand’s economy is largely intact but are posed to the threat from slowdown in Australia. Currently, Australian economy is experiencing slowdown, much higher than the expectations. The exporters of New Zealand are experiencing huge pressure over the past 5 years.

Undoubtedly, Australia plays a crucial role for New Zealand as it has huge impacts on the economy. Australia being the biggest trading partner of New Zealand is an important destination for the country’s manufacturers and producers. In 2014, New Zealand’s exports to Australia amounted to $9 billion with a profit of 18 cents for each dollar of sales (according to the New Zealand Institute of Economic Research). Major bilateral exports of the country are oil, gold, cheese and wine. The continuous deceleration in the China’s economic growth is also posing threat for New Zealand.

New Zealand dollar mounted to new heights of 99.78 Australian cents on 6 April 2015. However, there were projections that the New Zealand Dollar will reach at par with the Australian Dollar. But it eased down when the Reserve Bank of Australia held back Office Cash Rate at 2.25%.

The persistent strengthening of New Zealand’s currency against Australian Dollar is a major challenge for the nation's exports and tourism sector. Australia is the most vital source of tourists to New Zealand. Over the past year, the New Zealand currency appreciated 6% against Australian Dollar. The New Zealand’s currency against Australian Dollar has been increasing steadily since the beginning of this year. According to analyst, it is expected to reach the parity which did not happen over the past 40 years since NZ Dollar was floated in 1985.

Among the developed countries, New Zealand is the most stable economy with a steady GDP growth, lower inflation and declining unemployment. During the year 2014, the GDP growth was triggered by rising consumer expenditures and strong job growth particularly in tourism industry, construction activities and net immigration.

One of the most important concern for the economy is sliding prices of dairy products, New Zealand’s major export. New Zealand is witnessing a remarkable increase in property prices particularly in Auckland. The region is experiencing property boom with its residential housing market attaining new records.

However, the New Zealand government is concerned about increasing pressure on exporters. Besides, there are signals that the consumer’s price pressures are gradually picking up. Currently New Zealand is have much higher interest rates as compared to other economies of the world. The nation is witnessing huge growth in population which is backing up the upsurge in Auckland residential construction. The boom in construction sector is fuelling job growth thereby boosting consumer income and confidence. The New Zealand’s growth is robust with strong foundations. Despite rapid rise in currency, the exchange rate sensitive exports including tourist services and manufactured products are substantially escalating.

Tags : New Zealand