Eurozone crisis forms economic backdrop for 2012

Thursday, 26 January 2012, 12:28 pm
Press Release: ASB Bank

ASB Quarterly Economic Forecast January 2012
26 January 2012

Eurozone crisis forms economic backdrop for 2012

• Europe remains the main source of risk to global prosperity for 2012
• Ongoing financial market volatility will remain an issue for local businesses and investors
• New Zealand’s recovery will continue to be supported by low interest rates and solid commodity prices as long as a deep European crisis is averted

New Zealand will continue its gradual recovery over 2012, according to the latest ASB Quarterly Economic Forecast. However, the Eurozone sovereign debt crisis continues to threaten the global recovery, and the path towards crisis is still only a miss-step away.

ASB Chief Economist Nick Tuffley: “We continue to believe that Europe is likely to contain and defuse the Eurozone debt crisis over time. But the risk of a fumble – unwittingly or otherwise – is significant given the potential consequences.”

He says that assuming Europe avoids triggering another global financial meltdown, the New Zealand economy will continue with its gradual recovery. “New Zealand’s trade fortunes are increasingly tied to Asia, which is a faster-growing region that has greater potential for emergency stimulus up its sleeve than developed economies.”

Mr Tuffley is cautiously upbeat on the New Zealand outlook. “New Zealand is still benefitting from resilient commodity prices. We expect interest rates to remain low until at least the end of the year, and rebuilding Canterbury will also inject some life into construction.”

However, Mr Tuffley warns that 2012 will still be a difficult year. “It is extremely likely that financial market volatility is going to remain an issue for businesses and investors to deal with.”

“Businesses may look to protect themselves against any ongoing market volatility affecting foreign exchange and equity markets. For exporters, including the tourism industry, Europe’s crisis and long-term effects on its growth potential reinforce the importance of looking to Asia for sales opportunities.”

The full ASB Quarterly Economic Forecast is available here.

ENDS

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