Activity so far in 2007 has picked up markedly in a context of unprecedented high prices for New Zealand’s major commodity exports, maintaining pressure on resources and inflation. Monetary conditions have been tightened, while domestic risk spreads have widened in conjunction with the international financial market turbulence. These factors should cause growth to slow over the near term, allowing a moderation of inflation and eventual monetary easing.
In the light of persistent capacity tightness and external imbalance, caution should be exercised in reducing the large fiscal surplus. A slower than planned decline could ease pressure on both interest and real exchange rates, thereby supporting a shift towards more supply-friendly growth led by exports and investment. The rapid increase in public spending should be scrutinised for its efficiency and sustainability.
©OECD Observer No. 264/265, December 2007-January 2008
• OECD Economic Outlook No. 82, December 2007
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