Weaker trading partner growth due to the European sovereign debt crisis, and a later start the Canterbury rebuild has led Treasury to significantly revise down its near-term growth forecasts for the New Zealand economy.
Risks to the economic outlook still remain skewed to the downside. The possibility of considerably worse outcomes for the Eurozone could force the global economy back into recession, while further seismic activity in Christchurch would also hinder rebuilding activity, Treasury said in its Budget Policy Statement.
Weaker economic growth would contribute to softer near-term inflation than expected last year, although monetary conditions are still expected to become less stimulatory as the Reserve Bank has to gradually raise interest rates to keep inflation within its 1-3% target band. Treasury cut its forecast interest rate track over the next four years.
But despite the risks, New Zealand’s economy also faced a set of circumstances that provided the impetus for solid growth over the next four years, Finance Minister Bill English said.
The rebuilding of Christchurch, although delayed by aftershocks at Christmas last year, would be a key driver of domestic activity. New Zealand’s largest trading partners, Australia and China, were also forecast to maintain strong growth rates. New Zealand’s terms of trade were expected to remain at historically elevated levels on the back of demand from emerging markets for commodities.
Lower growth
GDP growth in the year to March 2012 is expected to come in at 1.9%, down from 2.3% expected by Treasury when it released its pre-election update in October last year. That will be followed by growth of 2.8% in the year to March 2013 (down from 3.4%), and 3.8% growth in the year to March 2014 (up from 3.3%).
The government expects to post a surplus of NZ$370 million in the 2014/15 year, although this is down from NZ$1.45 billion expected by Treasury in the pre-election update. The surplus would jump to NZ$2.242 billion in the 2015/16 year, which was down from a forecast for a NZ$3.076 billion in the pre-election update.
Government would keep net debt below 30% of GDP, with a peak of 29.6% in both 2014 and 2015 up slightly from a forecast peak of 29% in 2015 in the pre-election update. Net debt would be reduced to 20% of GDP in 2020/21.
Meanwhile, Treasury revised down its 90-day bank bill interest rate track over the next four years.
The 90-day bill rate is expected to be 2.7% in the March 2012 quarter, down from 2.9% expected in October last year. That’s set to rise to 3.3% in the March 2013 quarter (down from 3.7% forecast in October); 3.7% in the March 2014 quarter (down from 4.3%); 4.4% in the March 2015 quarter (from 5.0%); and 5.2% in the March 2016 quarter (from 5.3%).
Easier monetary conditions, if sustained, would provide some additional support to growth, although inflation pressures would come from an assumed fall in the exchange rate toward 2016, Treasury said.
43 Comments
Groan - how can the Chch earthquakes debacle possibly be trumpeted as a lovely boost to the economy? "The rebuilding of Christchurch, although delayed by aftershocks at Christmas last year, would be a key driver of domestic activity" Dosent line up with the complaints from the slaves on the ground there
The surplus forecast of $370 mill is over a $1 bilion down on their forecast only 5 months ago !! This makes Ken Ring look like a positive genius by comparison
Most GDP's are flation adjusted. Nominal GDP is growing at 6%.
Ministries of Truth don't forecast - they spin. Ours has been told to spin a budget surplus (politicians have convinced us that it is what matters), and so Treasury delivers - by pushing up 2014 GDP.
Forget whether the budget is in surplus - that is less important than the current account deficit. Tell us what current account deficit NZ is going to have to suffer to achieve the politician's fantasy budget surplus.
Good question. Slowly they are getting closer to my forecasts.
My own forecasts on this website - on GDP growth, construction trends, unemployment etc - have been consistently much closer to the mark than the so called experts, the economists at treasury and the banks. I've been somewhat - but not hugely - off on house prices
Yet these are guys who are highly paid professionals in their field. I am simply an intelligent person, who is well read in economics, understands the development industry very well, and has a pretty good gut feel for how things are on the ground based on my wide range of contacts in development, retail, hospitality etc.
Are their models flawed? Does an excessively scientific and quantitative focus blind them to the more complex human elements? Are they - either consciously or subconsciously - biased towards overly optimistic forecasts that suits the leaders of the day?
And I'm sick and tired of National blaming events out of their control for the measely economic returns under their leadership. Yes, these events HAVE had significant impacts. But at the same time, the govt has totally lacked urgency in addressing areas within their control that could help get economic growth happening. As Key likes to say, China and Australia are our key markets these days and both countries have been prospering over the past few years. What have we seen in return?
You might ask why do I care? I'm living in Australia now. Well, I still care deeply for my country, and I would like to return one day. I am saddened by what is happening. I hope that as part of a legion of great posters on this website I might help shape public opinion, in even a very small way
They are neo-classical/monetary economists, everyone...hence they cant see issues effecting their models when those effects are not in their models....
IRD does a better job apparantly.....
Add in the OIO as well....both are useless bastions of incompetence IMHO.
regards
Vanderlei: I totally agree
I don't think anyone in the country found their rose-tinted forecasts credible. Except perhaps a few politicians, where it help their self-serving agendas.
The only real question is whether this relates to incompetence or corruption (pandering to the incumbent govt).
Cheers
The Greek Experiment
Michael Hudson: Greek crisis used to find out how far finance can drive down wages and privatize
http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&…
Really its just a case of robbing peter to pay paul....there is no more growth for the financial parasite to take all of so now it has to consume from somewhere else.....in this case its workers and employers...
Really I think every day, more and more that our financial system will be the death of us (employees AND employers)..
regards
MEP Nigel Farage bombards his fellow unelected officials with 'you can't handle the truth'
http://www.zerohedge.com/news/farage-greek-chaos-you-aint-seen-nothing-…
No surprise here.
And of course when the next modest sized aftershock comes on March 11 or April 9 or whatever date it is, there will be more downsizing of expectations.
The reality is that it is ENTIRELY the GOVERNMENT'S FAULT that rebuilding has been so delayed.
A good chunk of the blame is the EQC fiasco. The rest is made up of the Governement's inability to force the insurers fulfill their financial obligations in a more timely manner - this could have easily been done by threatening to introduce new regulations which would mean that ANY insurance policy sold in NZ from this day on, would require a penalty clause for not settling a claim within 6 months of the date of the event for larger claims (and perhaps just 60 days for small claims). Penalty interest could accrue at the 90 day bill rate plus 5%. That would have got the insurers moving!
Then there is CERA directly to blame for forcing demolition of fixable buildings and making laughable claims about buildings being in imminent danger of collapse then wandering through some of the most dangerous structures ever (such as the Grand Chancellor).
So CERA and nincompoops Sutton and Issacs have clear felled the city removing any chance of a quick recovery or in fact a chance of any significant recovery in the remainder of the decade.
When insurance companies finally capitulate (because they begin to realise the cost to rebuild will be so significantly higher than they currently believe) the property owners will too happily take the cash, they will likely only tithe a little (a teenie weenie little) to the rebuild of Christchurch, sprinkling token amounts to build some modest structure in order to generate a little cash from their idle land - perhaps in about 2016.
Until the stupidity and wastefulness of CERA is gone, Christchurch will not recover.
No recovery. NZ sinks deeper into the mire.
One minute you are saying private insurance is slow to pay out the next its the Govn's fault?
If there are going to be ongoing earthquakes in Chch for 5 years whats the point of re-building? Ok lets say you rebuild.....will you get insurance? Ok say you do at a significant premium.....so another EQ kncks Chch flat again and no one will give Chch insurance......whos the insurer of last resort?
Chch will never recover....IMHO....its decline is pretty much assured.
regards
If private insurers and EQC paid out in cash at least the indemnity value of the damage within a reasonable period of time (months not years) that everyone down here would be a lot happier.
Is it really fair for someone to have a house sitting uninhabitable for 2 or 3 years with perhaps $250,000 of damage and EQC sitting on their hands dithering, when the property owner diligently paid their insurance bills by the due date for decades?
All they need to do is make even partial payments (which EQC started doing after Sept but seemed to have virtually delayed or stopped since Feb and June).
Chris J "The reality is that it is ENTIRELY the GOVERNMENT'S FAULT that rebuilding has been so delayed"
Now, that's a bit rich. let's try this; if your house is damaged by termites - do you get rid of the termites first and then rebuild or just rebuild regardless.. The truth is CHCH is still be rocked by earthquake - it doesn't take a rocket scientist to work that out!
Yeap many forget that the EQ is a natural disaster...yet we all try to blame someone for it. It is unfortunate we have been hit by it, but it is a natural disaster, yes the process for insurance etc has been a mess, and no plan was ever in place to cope with this (WHY EQC HEADS have not rolled is beyond me). But to have the country's economic recovery pinned to a nautral disaster (and there is no end in site for the shaking) is just ridiculous.
As for on-going insurance, well it is all about risk is'nt it, and going against mother nature in CHC at the moment is probably a bit risky.
Wolly you're right it was no natural disaster.
The disaster came with the Government management.
Earthquakes are entirely expected. One could hit Wellington any minute, thousands will be killed and who is to blame? Not God. We know this could happen yet buildings were and allowed to be built that cannot withstand major shaking such as that experienced in 1855.
Worst of all we know such events are not only possible, they are indeed almost certain to occur within definable timeframes.
An eruption in Auckland is also a near certainty within the next few hundred years. A mega-eruption of Taupo is a real possiblity too.
For there to be such poor planning as to how to respond and how to deal with the issues is pure negligence.
Most of ChCh's woes are caused by poor responses by insurers (I'm talking about settling claims rather than actually doing physical repairs), poor responses by authorities (in terms of dealing with damaged property and property owners) and poor responses by engineers (continuing to design buildings only capable of failing).
The Government has control over all of these issues but has only used its power to make things worse.
Utter incompetence after Sept 4 was blatently obvious and I commented about it on this website numerous times.
Unfortunately many people paid with their lives for that incompetence.
Cracks in many of the buildings that collapses and killed people, and leans on masonry facades were plain to see with the naked eye prior to Feb, yet many buildings were left uncordoned and open to the public mainly because of incompetent assessments.
We had a 2 storey masonry wall on a Worcester St property with severe cracking X cracking after Sept 4 and Boxing Day, and a significant lean (at least 30mm away from rest of the structure at the top). EQC assessors (it was a residential use property) came round stood underneath it (despite us telling them it was critically damaged) and then told us it just needed repointing and was safe and repairable. We didn't have a bar of it and left it cordoned. It collapsed about 2 weeks later on Feb 22. Anyone standing nearby would have been instantly killed.
It's the same storey all over town, and worst of all there are still structures which people are parking, walking or living under in iminent danger of collapse, but no one has noticed. Worst of all no one really wants to contact the authorities because they are the most useless bunch of overreactionists who will come down more like a ton of bricks than the structures themselves.
In November a 2 level 100yr old masonry firewall on a building still hang tettering with the public parking cars below - all just 50m off Colombo St in Sydenham outside any of the redzone cordons, CERA never even noticed - they were far too obsessed with destroying solid structures in the heart of the red zone, a nudge to the owner was all that was needed to sort it out - CERA probably would have bulldozed his building.
All around the city dozens if not hundreds of brick and block fences sit balanced riddled with cracks and able to rock freely. Nothing is being done by CERA to alleviate what could easily cause multiple fatalities particularly of the young and old in another event. After 4 major shakes even block fences which seemed solid are now wobbly. We had one that seemed ok prior to Dec 23, which all but fell that day, so it's clear that the ones you see now riddled with cracks are a real danger. What are CERA doing? Nothing.
Chairman Moa, if buildings were resilient and fixable then there would be no need to delay.
What is the point in rebuilding anything that has a possibility of being damaged in another event just because there are no earthquakes at the time of building?
Most of ChCh's buildings are timber framed, most timber exterior, gib lined, timber floored buildings have little damage even if they are on red zoned land. With more resilient and fixable floors there is no issue in rebuilding at any time.
It isn't exactly like no building is occurring. There is a lot of new building going on, even on land that had moderate liquifaction. It's just that most of the building is new not insurance work (although they've managed to find insurance for their new buildings).
There's actually at least 3 large buildings under construction several big warehouses (including Briscoes in Salisbury St on land with severe liquefaction - green blue zone), numerous smaller blocks of shops etc (on liquefaction prone land in Merivale and St Albans - green-blue zone), it's just that in the scope of things this wouldn't even be normal building activity.
It's not that buildings can't be built now. It's that no one is building because insurance companies haven't sorted settlements.
Chris_J: The best example of everything that is wrong with the CCC is the case of that lady in the news the week after the Feb 22 quake .. standing outside her brand-new building for which the certificate of occupancy had been issued by the CCC the week before .. met all the building standards etc etc .. and it collapsed .. whatever happened to her? .. any news?
There are some sad examples. One I heard this week is an old gentleman in redcliffs, has a house that EQC will repair the land on, the house is repairable, so only gets that value. EQC have said they will fix the land in approx 5 years, he is 71, his wife 76...he was in tears.
I just got a call from one of our future neighbours who are still in Chch (Brighton) and had planned to sell their house before Xmas 2010. Well, I should say that they would have been our future neighbours because by the sounds of it they (and I quote) can't see the light at the end of the tunnel and are considering reselling the section they were going to build on here (Nth Canterbury).
Their house has sustained only cosmetic damage and their land was zoned OK to repair but they are still waiting to get a cent from EQC. In the meantime, they want out but are stuck and their life is in limbo. They've held the land here since late 2008 and can't go on like that forever, especially with 2 little ones and another on the way. Their (new) house plans were all drawn up and ready for building consent but it seems they may well never make it. One thing is sure, when they eventually do manage to obtain settlement for their repairs and sell, they're out of Chch and not coming back.
Oh gee wizz I'm amazed, that's just so surprising that the government's mates in Treasury got the figures wrong in the governements favour.
They will never admit they are getting no where near balancing the books, and the books are just getting worse, or that they cut taxes at a time when they definitely couldn't afford to.
boy our banks are on a roll
http://www.stuff.co.nz/business/world/6432119/Westpac-posts-A-1-5b-quar…
"Buckle up for a massive recession in Europe because one is coming."
"Greece could bring the entire world economy down."
http://www.marketoracle.co.uk/Article33140.html
Harrrrrrrrrrrrrrrrrrrrhahahahahaaaahaaaaaaa
A written document giving firm dates and detailed actions for a planned Greek default has been in the possession of two top Wall Street bank currency trading bosses since the second week in January. The Slog has separate but corroborative sources affirming the existence of the document, and a conviction among senior bank staff that – at least at the time – the plan represented “a timetable, not a contingency”. The plan gives a firm date of March 23rd for default to be announced after the close of business.
Which means you should pop off and read this AJ....http://www.marketoracle.co.uk/Article33140.html
Wgtn rebuild after a quake estimated at $40 billion - lets hope the big one doesn't come anytime in the next, say, 5 years. On top of ChCh that would cripple the country
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10786129&ref=rss
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