May 2019

In April, the IMF predicted that New Zealand’s economy will perform well when compared to other OECD members, despite the likelihood of a global slowdown. Analysts remain concerned about a lingering fallout from the trade war between the United States and China, which has been going on for some time and has sent ripples through nearly every major part of the world economy.

New Zealand’s ability to remain economically buoyant under such conditions comes from its low debt, low jobless rate, and leftover reserve funds from its 2018 budget. The news is not uniformly positive, however. In some ways, the country is a victim of its own success.

Although New Zealand’s low unemployment rate from the first quarter of this year is a sign of healthy economic foundations, it has nevertheless resulted in an inflationary weakening of the currency. Moreover, the low unemployment numbers create new difficulties for businesses seeking qualified candidates to fill their vacant positions, thereby causing a slowdown in growth due to a lack of staff.

These complex challenges are among the key factors in the slowing of overall business growth within the first three months of this year, as well as the 0.6 percent drop in the value of the New Zealand dollar at the beginning of May.

The rate of unemployment stands at 4.2 percent – slightly lower last quarter’s 4.3 percent. This fall in the unemployment rate, along with the resulting highly competitive job market, have not gone unnoticed by the Reserve Bank of New Zealand. Interest rate cuts are therefore likely to come in the near future, in order to return key economic indicators to a stable equilibrium. Adrian Orr, the governor of the Reserve Bank of New Zealand, has stated that potential interest rate cuts would also be a response to the effects of the global economic slowdown.

Finance Minister Grant Robertson also offered his read of the situation, saying: "The Reserve Bank's given some signal where they're heading at 1.75 percent; perhaps they have a little bit more room to move than others, but those decisions are for the governor of the Reserve Bank."

He added, "What I do know is that fiscal and monetary policy do need to work together, and as I say one of the factors we'll be bearing in mind is what our role is when the economy slows a little and what we can do to support the continuation of New Zealanders' living standards.”

Wage growth has been modest in the New Zealand economy, rising at a rate of two percent in the government sector as well as private business. Much of this increase was essentially nullified by inflation – which was measured at 1.5 percent at the end of March.

Time will tell how New Zealand will fare if this situation is made more complex by a slowdown in international trade. With its considerable resources and vibrant economic level, the country certainly has the capability of handling a big challenge. But much depends on the execution, and it will take a measure of skill to keep the country safe from the uncertainty that has lately come to characterise the economic reality of many other nations.

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