ASB Quaterly Economic Forecast déjà vu all over again

Friday, 22 July 2011, 9:07 am
Press Release: ASB Bank

Economic forecast déjà vu all over again

New Zealand recovery gathering momentum The global economy generally in good shape The growing influence of Asia and New Zealand’s rising Terms of Trade imply a structural shift in the NZ and US dollars.

The New Zealand economy is now showing some encouraging signs that the recovery is gathering momentum, according to the latest ASB Quarterly Economic Forecast.

ASB Chief Economist Nick Tuffley says the foundation for a steady recovery is more firmly in place than it was last year. “GDP grew strongly over the March quarter despite the February earthquake, highlighting the improving state of the underlying economy. Households are starting to perk up, and export commodity prices are elevated”.

Mr Tuffley says there is a sense of déjà vu with the current economic outlook. “Around a year ago three themes were emerging: New Zealand seemed to be coming out of recession, the United States economy appeared to be losing momentum, and the Greek debt crisis had erupted. These themes are eerily familiar this year.”

Mr Tuffley is upbeat on Asia’s role as a key driver of global growth. “The strength of Asian demand has contributed tangibly to New Zealand’s economy, both directly and indirectly via Australia, and this is likely to continue for many years.”

“The global economy is generally in good shape. The real threat to the global economy is the debt crisis in Europe, which is driving a small but growing chance of turmoil.”

Mr Tuffley notes that Asia’s growing prominence on the global stage will have implications for the New Zealand dollar. “The rise of Asia and the extensive problems in many western economies will have a lasting legacy on the New Zealand dollar.

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“The strong influence Asia is having on commodity prices has not only lifted New Zealand’s global purchasing power but also changed how the global economy influences the New Zealand dollar. Structural weaknesses in the US dollar will also have an influence. It is likely that the New Zealand dollar will average closer to USD0.75 going forward rather than the USD0.57 average for the first 20 years of its float. However, over the rest of 2011 we expect the NZ dollar will remain above USD0.80,” he says.

QF11JulyEmbargo.pdf

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