Growth rates recorded for the New Zealand’s economy are quite encouraging in principle. The nation’s central bank, Reserve Bank of New Zealand, is expecting the economy to expand 3.2 percent in this year and 3.6 percent in the next year. The low level of interest rates, rises in residential construction, high population growth and high incomes from the tourism sector are underpinning the New Zealand economy.
However, the risks on the downside continue to be high. The subdued growth outlook for China continues to be a drag on external demand. Furthermore, still low commodity prices would lower the outlook of economic growth through a more subdued contribution of foreign trade. According to Commerzbank, the New Zealand economy is likely to expand 2.9 percent this year and 2.7 percent next year.
The RBNZ, in this context, is quite worried regarding the low prices of milk, which is still trading significantly below their levels from early 2014. The domestic dairy sector, after all, contributes over one quarter to the New Zealand’s exports. Even if dairy prices have increased recently, prices of milk are usually expected to stay under pressure because of the high production levels globally.
The central bank, in August had cut its medium-term forecast for the milk powder price by nearly 10 percent. The nation’s terms of trade would therefore be negatively impacted from low prices of milk and hence dampen the outlook of economic growth in spite of strong domestic demand, stated Commerzbank.
