World Economy

NZ Economy Growing

NZ Economy GrowingNZ Economy Growing

Australia and New Zealand Bank economists say they are seeing  evidence of “typical late cycle” behavior starting to show in the economy—but believe that this time around New Zealand can avoid the boom-bust pattern of previous cycles.

In their weekly Market Focus, the economists cited as visible ‘late cycle’ signs: Rising household credit, deteriorating savings, housing market excesses, a tightening labor market with skill shortages and some signs of a pick-up in non-tradable inflation, reported.

They pointed out that previously the New Zealand economy has tended to show “hi-beta” characteristics, namely big booms in the economy, but big falls too.

“While real GDP growth has averaged a respectable 2.75% per year since 1990, there have been peaks of close to 8% and troughs where the economy has contracted at a 2.5% annual rate over that time. Big swings and a volatile business cycle have been par for the course.”

They said that part of the traditional cyclical nature has reflected the fact New Zealand is a small, open, agriculturally focused economy, dependent on the global backdrop.

“But it also reflects the tendency for the economy to build up significant internal imbalances late in the economic cycle, which then ultimately require purging.

“Imbalances can make the economy even more vulnerable in periods of economic uncertainty. Recall that the New Zealand economy headed into both the Asian Financial Crisis and the Global Financial Crisis with weak structural metrics (a large current account deficit, deteriorating household saving, housing market valuation excesses, credit growth running north of 15%, and strong domestic inflation pressures), in effect making the economy far more susceptible to a turn in the international scene.


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