Economic Analysis
New Zealand

New Zealand

Population 4,647 million
GDP per capita 37 066 US$
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Synthesis

MAJOR MACRO ECONOMIC INDICATORS

  2014 2015 2016 (p) 2017 (p)
GDP growth (%) 3.0 3.1 2.8 2.7
Inflation (yearly average) (%) 1.2 0.3 0.7 1.5
Budget balance (% GDP) -0.3 -0.2 -0.4 -0.3
Current account balance (% GDP) -3.1 -3.3 -3.0 -3.5
Public debt (% GDP) 30.3 30.0 29.8 29.2

(e) Estimate   (f) Forecast

STRENGTHS

  • Proximity to Asia and Australia
  • Touristic appeal and large agricultural sector
  • Public debt under control
  • Dynamic demographics

WEAKNESSES

  • Economy reliant on foreign investments
  • High levels of household and corporate debt (especially in the agricultural sector)
  • Dependence on Chinese demand
  • Shortage of skilled labour

RISK ASSESSMENT

Growth continues despite slowdown in China

Growth in 2017 is expected to remain consistent, at a similar level to 2016, despite slowing growth in China (its leading trading partner) which will nevertheless impact on the economy. Activity will be sustained by domestic demand, encouraged by a more relaxed monetary policy and low unemployment (4.9% in September 2016). The cut in policy rate by the central bank as well as the strong increase in immigration will drive household consumption. The rise in property prices will also bolster private consumption, but the high level of household debt (165% of gross disposable income) represents a risk for the stability of the banking system.
The construction sector will be underpinned by residential property investment and the continuation of the reconstruction projects following the earthquakes of 2011 and 2016. Investment in the agricultural sector is expected to pick up in 2017 with a gradual increase in product prices and improved productivity. The dairy (a quarter of exports) and fruit (apples and kiwi) sectors, together with the wood segment, will perform better. However, farmers are heavily indebted as a result of the losses incurred because of low prices (in particular milk), making them more vulnerable to possible shocks (drought, earthquakes). The increased demand from the United States and Australia for these products however will help partly offset the slowdown in demand from China.
Inflation is likely to rise, closing with the central bank’s target rate (2%). This rise reflects increased domestic demand, the gradual recovery in oil and gas prices and the stabilisation of the exchange rate. The central bank (RBNZ) cut its policy rates by 100 base points between October 2015 and November 2016 (from 2.75% to 1.75%), and is expected to continue its monetary policy easing in 2017 in order to boost domestic demand.
The authorities do also have a certain amount of room for manoeuvre with the budget (low debt and small deficit) to boost activity if needed.

 

Healthy public finances and viable current account deficit

The budget deficit should continue to contract and near equilibrium. The restoration of budget surpluses is a priority objective of the government in so far as the country is mainly indebted to non-residents and is facing an ever-increasing hole in its social security system (ageing population). At the same time, the public debt is likely to decline further, even though already at a very low level compared to other OECD countries.
The current account balance, with a structural deficit because of the income balance deficit, is expected to worsen slightly in 2017. The growth in exports (in particular agricultural products) will not completely offset that in imports, boosted by strong domestic demand.
In addition, the Trans-Pacific Partnership (TPP) agreement, signed in October 2015, is set to be called into question following the election of Donald Trump, who is against ratification of the agreement, as President of the United States. Another multilateral agreement (the Regional Comprehensive Economic Partnership (RCEP)) is currently in negotiation and includes among others China, India, Japan and South Korea. This new agreement could substitute for the TPP by creating new opportunities for the country, in particular in the agriculture and dairy sector. The signing of the agreement could thus enable the country to increase the contribution of exports to the GDP to 40% by 2025, compared with 30% in 2016, as hoped by the authorities.
The New Zealand banking sector is fairly well capitalised, even if the low household savings rate (3%) forces the banks to borrow on the financial markets and thus be exposed to the volatility of these. The sector is highly concentrated and dominated by just four banks, which, together with a high level of debt among households and farmers, is also a source of vulnerability.

 

Extremely positive business climate

John Key, Prime Minister since 2008, announced his resignation on 5 December 2016, one year before the end of his term. The leader of the National Party, expected to run for a fourth term, cited family reasons for leaving. His successor, Bill English, will benefit from a favourable economic context before the November 2017 General Election.
The business climate is extremely positive and the country was in first place (out of 190 countries) in the most recent Doing Business survey by the World Bank. It is in the lead in particular for the ease of setting up a business, obtaining credit and the protection for minority investors.

 

Last update : January 2017

Payments

 

Bills of exchange or promissory notes are not frequently used for commercial transactions inNew Zealand.

Although cheques are still used in everyday transactions, payment by electronic  funds transfer or credit card has been developing rapidly.

 

Wire transfers or SWIFT bank transfers are the most commonly used payment method for domestic and international transactions. Most of the country’s banks are connected to the SWIFT network, which offers a rapid, cost-efficient means of effecting payments.

 

TheNew Zealanddollar, along with the main foreign currencies, is now also part of the Continuous Linked Settlement System / CLS, a highly automated interbank transfer system for processing international trade settlements.

 

Debt Collection

 

The collection process starts with the serving of a final notice, a “seven-day letter” whereby the creditor notifies the debtor of his payment obligations including any contractual interest due.

 

Without payment by the debtor company of an uncontested payable claim exceeding 1,000 NZ$ (or after obtaining a ruling), the creditor may summon the debtor to settle his debt or to enter into a compromise within 15 days or face a winding-up petition with his company considered insolvent (Statutory demand under section 289 of the Companies Act 1993).

 

Under ordinary proceedings, once a statement of claim (summons) has been filed and where debtors have no grounds on which to dispute claims, creditors may solicit a fast-track procedure enabling them to obtain an executory order by issuing the debtor with an ‘application for summary judgement’.

 

This petition must be accompanied by an affidavit (a written sworn statement by the plaintiff attesting to the claim’s existence) along with supporting documents authenticating the unpaid claim.

 

For more complex or disputed claims, creditors must instigate standard civil proceedings, an arduous, often lengthy process lasting up to two years.

Proceedings are heard by District Courts or, for claims exceeding 200,000 NZ$, by the High Court.

Appeals from theses courts go to the Court of Appeal, and any further appeal is to the Supreme Court of New Zealand.

 

The High Court provides for eligible cases to proceed via a fast track procedure, for example in the fields of insurance, banking, and finance, disputes on intellectual property rights, merchandise transport, commercial contracts, and merchandise import/export.

 

During the preliminary phase, the Court examines the case documents authenticating the parties’ respective claims. During the subsequent “discovery phase”, the parties’ lawyers may request their adversaries to submit any proof or witness testimony that is relevant to the case and duly examine the case documents submitted.

 

An amendment to the High Court and District Courts Rules, effective as of 1st February 2012, encourages the submission of evidence by electronic means (e-discovery), like e-mails, real time computer communications, accounting databases, unless the litigant obtains an exemption from the judge.

 

Likewise, during the case management conference, the judge may order standard discovery or tailored discovery.

 

Before handing down its judgement, the court examines the case at hearing, considers the lawyers’ arguments and holds an adversarial hearing of the witnesses who may be cross-examined by the parties’ lawyers.

 

Arbitration or Alternative Dispute Resolution (ADR), a mediation procedure, may also be used to resolve disputes and obtain more rapid out-of-court settlements, often at a lower cost than through the ordinary proceedings.

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