Moody's cautiously upbeat on NZ outlook

Thursday 8th July 2010

International credit rating agency Moody's Investors Service expects a strengthening upswing in the New Zealand economy in 2011 and 2012, as long as European weakness doesn't ruin the party.

In commentary released today, analyst Matthew Circosta says Moody's expects growth in 2010 to be lower, at 2.4%, than current consensus forecasts of 2.8%, but "assuming a healthy global economy, New Zealand's recovery should evolve into a self-sustaining expansion during 2011 and 2012."

"For now, the country is well placed to continue benefiting from Australia and Asia's strong group prospects, unless Europe steps in and spoils the party.

Given rising inflationary pressures, the agency expects a full percentage point movement in the Reserve Bank of New Zealand's Official Cash Rate to be at 3.75% by the end of this year, with a further rise to 5% in the course of 2011, especially if emerging labour shortages lead to a rapid rise in wages.

However, Moody's says those forecasts may be too bullish.

"Should inflation to continue to surprise on the downside and global growth weaken considerably, lower interest rates would be required to stimulate the domestic economy."

"Despite the risks, New Zealand's outlook is broadly positive," said Circosta.

"The impressive export upswing is assisting policymakers' desire to broaden growth and should receive an added fillip next year as the 2011 Rugby World Cup boosts tourism."

Businesswire.co.nz

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