ASB - Baby Steps to Economic Recovery

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Drought to dent 2013 growth but impact predicted to be less than 2007/2008 drought. RBNZ to face challenging year with continued NZ dollar and housing market tensions.

Baby steps to recovery

NZ GDP Growth

Despite Europe’s unfailing ability to cause periods of uncertainty, the global outlook for this year still looks close to the long-run average.

ASB - Quarterly Economic Forecasts - May 2013

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The global economy and New Zealand are making progress, but not without some man-made or weather-induced stumbles according to ASB’s latest Quarterly Economic Forecast.

ASB Chief Economist Nick Tuffley says, “The evolution of economic growth is rarely smooth and is often a case of taking a few steps forward and the occasional step backward. Europe has already taken one step back this year with the biggest erosion of confidence coming from the way the bailout of Cyprus was handled.”

However, Mr Tuffley remains upbeat. “Despite Europe’s unfailing ability to cause periods of uncertainty, the global outlook for this year still looks promising. Asia will continue to outpace the West, and therefore provide New Zealand exporters with some shelter from the continued absence of growth in Europe.”

Mr Tuffley says, “The main step backward for New Zealand is the drought that has affected much of the country this summer. We estimate the drought will knock 0.7 percentage points off New Zealand’s economic output this year, but this is lower than the cost of the 2007/2008 drought. Some consolation is that global dairy prices have been pushed up sharply by concerns over supply shortages.”

The New Zealand economy finished 2012 on a high, with strong growth in the final quarter making up for some of the weakness during the middle parts of 2012. On the outlook for 2013 Mr Tuffley says, “The rebuild of Canterbury has stepped up a gear, and its impact on overall economic growth will become increasingly apparent over the next couple of years. Stronger house building activity elsewhere, particularly in Auckland, will provide a further boost.”

Mr Tuffley expects the economic environment will remain a challenging one for the RBNZ. “Inflation pressures are muted for now with the NZD high. But the housing market remains strong in Canterbury and Auckland with credit growth also picking up. We expect the RBNZ will keep interest rates on hold until March 2014.”

Download the attached report for more information.

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ASB Quarterly Economic Forecast - May 2013