Sharechat Logo

China slowdown, weaker commodity prices, drop in house prices biggest risks to NZ: IMF

Tuesday 10th June 2014

Text too small?

A sharp slowdown in China's growth, financial market volatility, a sustained decline in commodity prices and a drop in house prices are the biggest potential risks facing the New Zealand economy, according to an assessment by the International Monetary Fund.

The IMF gives New Zealand a broadly favourable appraisal in its latest country report, noting that economic growth is "becoming increasingly embedded and broad-based" and headline inflation remaining below the mid-point of the central bank's target even while underlying pressures "may be building."

The global body of 188 member countries, set up to foster international monetary cooperation, expects the New Zealand economy to expand 3.5 percent this year before moderating to a trend rate of 2.5 percent over the medium term. The nation's terms of trade will continue to boost growth in national income while moderating from near-record levels, given a decline in global dairy prices.

Strong construction activity, driven by the rebuild of Christchurch and more broadly a shortage of housing, is expected "to remain an important driver for near-term growth," the IMF said.

The report includes a risk assessment matrix for New Zealand, which rates a probability and impact of key risks. A sharp slowdown in growth in China is rated a low/medium likelihood which would have  a medium impact on the economy, affecting New Zealand directly through the terms of trade and indirectly through the impact on Australia, New Zealand's second-largest market. It noted New Zealand's flexible exchange rate would provide something of a buffer.

A surge in global financial market volatility is regarded as a high risk which could be triggered by a disorderly exit by the US Federal Reserve and other major central banks from unconventional monetary policies. This could have a medium impact on New Zealand, driving up offshore wholesale borrowing costs, the IMF says.

A sustained decline in commodity prices is deemed a medium risk but with a high impact on the economy, given the nation's dependence on commodity exports, though with the exchange rate providing a buffer.

A sharp fall in house prices is cited as the biggest potential domestic risk, with a medium likelihood and a medium-to-high impact on the economy.

"There are underlying supply and demand factors that contributed to the high and rising house prices in New Zealand, but the risk of house price overshooting remains," it said. "A deterioration in households' ability to service mortgage debt, possibly due to a sharp rise in unemployment, falling incomes, or very high domestic interest rates, could cause a sudden price correction, reducing consumer confidence as a large share of wealth is in housing, worsening banks' balance sheets and impact on overall economic activity," it said.

 

 

 

 

BusinessDesk.co.nz



  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

SML - Synlait Milk Limited - Trading Halt of Securities
AIA - Auckland Airport announces board chair changes
AIA - Auckland Airport announces board chair changes
CEN - Tauhara commissioning progress update
FPH initiates voluntary limited recall
March 28th Morning Report
KFL Celebrates 20 Years of Excellence in Investment Mgmt.
SVR - Savor FY24 Earnings Guidance & Change in Banking Partner
NZK - NZ King Salmon Investments Limited FY24 Results
March 27th Morning Report