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Economic Outlook
The latest New Zealand Institute of Economic Research (NZIER) forecasts suggest the medium term prospects for national growth are robust. Growth is expected to rebound over the coming year peaking at 3.8 percent in 1997/98. It will then ease slightly to 2.7 percent by the year 2001[2]. Probably the most positive aspect to this prediction is that the New Zealand economy has bottomed out of the current business cycle while still growing at almost 2 percent per annum. This contrasts with previous experience where the economy has contracted for extended periods during the trough of major business cycles (Figure 3.8).
Source: Statistics New Zealand (actual); New Zealand Institute of Economic Research (Forecast)
Forecasting of medium term economic activity is always difficult but is particularly so at this time given the uncertainty regarding the final shape of economic policy following the country’s first MMP election. The forecasts assume the election will result in a centre - right coalition with no major change in economic policy. However, significant policy differences do remain among the major political parties which may effect aspects of the country’s long term performance. These differences relate particularly to the level of government spending, appropriate monetary policy settings and targets, and balance of power between employees and employers under labour relations legislation.
The Institute believe the international outlook remains positive for the country. Growth among our major trading partners has eased recently but is still expected to increase at an average rate of 3.7 percent per annum over the remainder of the decade. There are uncertainties associated with this outlook including the performance of the Australian economy in response to Liberal government reforms and our ability to continue to gain access to the leading economies of Asia.
The outlook for tourism also remains strong despite the appreciating New Zealand dollar. This is likely to have a particularly positive impact on Christchurch’s economy. The annual growth rate in tourist numbers is expected to increase over the remainder of the decade peaking at 11.5 percent in the year 2000 as the Asian economies prosper. The full significance of this growth for Christchurch is discussed later in the report.
The outlook for business reflects the economy’s progression through the business cycle. Profits declined during 1995/96 in the face of tighter market conditions. It is expected profits will grow modestly through the coming year before increasing strongly in 1997/98 as private consumption is boosted by the second round of tax cuts. Business investment has also eased but is expected to recover on the back of higher demand in 1997/98 supported by falling interest rates.
Despite the first round of tax cuts household consumption is only expected to grow slowly over 1996/97. However, assuming the second round of cuts proceed, consumer spending is expected to rebound in 1997/98 growing by 3.9 percent nationally. This growth will be supported by increases in employment.