30 August 2023
Often seen as the poor cousin of Australia, in the long term, APAC investors will overlook New Zealand at their peril. This is a country that was recently described as "the trading partner of almost every country in the world", a phenomenon which is not easy to secure. So, what are the prospects for New Zealand going forward?
Even though the UK is still in intense negotiations with the EU to secure anything like a free trade agreement, New Zealand has managed to sign, seal and deliver such an arrangement. At the other end of the spectrum, a more established trading arrangement has seen China become New Zealand's leading trade partner. In addition, New Zealand has signed agreements with the:-
· Regional Comprehensive Economic Partnership (RCEP)
· Trans-Pacific Partnership (TPP)
New Zealand has signed more than ten different trading arrangements, making it one of the most popular trading partners globally.
The three main trading partners are:-
· United States
Around 30% of New Zealand's direct exports are estimated to go to China, although this increases to 65% when looking at the more expansive Asia and Oceania areas. Many other exports in this area will find their way into the Chinese supply chain, making China by far and away New Zealand's most influential trading partner.
The short-term outlook for the New Zealand economy is not encouraging, with interest rates having risen dramatically in recent months. While inflation is starting to come down, in tandem with the global trend, this is at the expense of short to medium-term economic growth. Expected to enter what is a "technical recession", a period of two-quarters of economic contraction, growth in 2023 is still likely at around 1%. This will increase to 1.2% in 2024 against respective figures for the global economy of 3.4% and 2.9%.
House prices have risen dramatically across New Zealand over the last few years, a market which has proven very difficult to control. In a similar scenario faced by UK homeowners, mortgages up for renewal over the next 12 months could see rates rise from 4% to as high as 8%. Even though base rate rises may have peaked, they are unlikely to fall dramatically in the next two years, suggesting a squeeze on the mortgage/housing market.
While the short to medium-term outlook for the New Zealand economy is challenging, the country has a strong base going forward with a growing number of trade arrangements. Recently, we have seen supply chain issues, inflationary pressures, rising interest rates, and a strong housing market putting massive pressure on the wider economy. Talk of a "technical recession" is obviously alarming, but it is worth remembering that on an annual basis, the economy is not expected to show negative growth.
Like many other countries worldwide, New Zealand is still recovering from the COVID-19 pandemic, which prompted a strong reaction from the authorities. Ahead of the general election on 14 October, there is also growing political pressure with parties vying for voters' attention and unwilling to work together in the short term. Challenging times!Back to News