New Zealand

Risk of a sharp correction
Economic activity is projected to slow and capacity constraints to ease, but some imbalances will persist. While rapidly expanding household incomes are likely to temper the effects of higher interest rates on consumer spending, rising wages and other input costs will squeeze business profitability further and curtail investment. Exports should recover as the effects of the exchange rate appreciation wear off and external markets improve. Inflationary pressures will remain important.
Significant monetary tightening has not yet produced a material slowdown in domestic demand growth, and risks of a sharp correction are increasing. The task of bringing the economy back onto a sustainable growth path would be made easier if the government delayed the planned easing in its fiscal stance, thereby allowing a more balanced policy mix for managing current macroeconomic challenges.
Population (000s), 20044 061
Area (000 sq km)269
CurrencyDollar
GDP (Billion USD), 200496.6
Life expectancy at birth (Women, Men), 2003 81.1, 76.3
Total labour force (000s), 20042 108
Government typeParliamentary Democracy
Indicators% change unless otherwise indicated
200520062007
GDP growth2.72.62.4
Consumer price index3.13.73.1
Short-term interest rate (%)7.17.67.6
Unemployment rate (%)3.63.94.1
General government financial balance (% GDP)5.34.64.3
Current account balance (% GDP)-8.7-9.1-9.0
Source: OECD© OECD Observer, No. 252/253, November 2005


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