Investors take note. It’s not just rugby players and sheep that outperform in New Zealand, the economy and local sharemarket have also been riding high. Indeed, the New Zealand bourse, like the nation’s annoyingly good All Blacks, has shown its Australian counterpart a clean pair of heels in the five years to mid-July 2014. The NZ50 gross share index has risen 87% over this time vs the Australian All Ordinaries index rising 46% during the same period.
According to ANZ’s New Zealand economics team, the nation is currently “enjoying a marked economic upswing, putting it in a relatively select club globally. We are expecting annual average GDP growth of 3.7% this year and 2.9% the next”.1
ANZ NZ says business confidence has slipped a little from its recent 20-year high, but remains at very strong levels, as does consumer confidence. It added that “The Reserve Bank has lifted interest rates twice and the NZD remains high, but overall financial conditions remain stimulatory relative to history”.
The van Eyk Investment Outlook Report June 2014 is similarly upbeat about the NZ economy, which it says is being particularly driven by extremely strong construction. “Construction activity expanded at a rate of 16% in the first quarter, driven by the post-quake rebuild in Auckland”.
Van Eyk also noted that employment growth for the March quarter was a strong 3.7%, which it said is underpinning solid consumer spending as evidenced by the 6.2% lift in electronic card transactions y-o-y to May. The report added that high and rising net migration (the highest since 2002-03) is also adding to demand pressures.
It’s not all sweetness and light across the pond, though. The ANZ NZ economics team cautions that despite its robust outlook, “New Zealand would do well to stay humble: risks and vulnerabilities remain. The global growth picture is improving but remains fragile, and New Zealand’s commodity prices are high but falling. Our economy remains heavily indebted, providing a natural cap on growth, and the growth outlook is construction-centric, an imbalance that will see frictions and strains across the economy.
“To prolong the expansion, productivity growth and a generally enhanced supply-side performance will be needed, and consumption must be the sacrificial lamb to make way for a necessary investment drive. We’re constructive on both counts”.
On a final note, despite the All Blacks, New Zealand is in fact important to us. It’s our 6th largest trading partner2, with annual trade volumes (2103) worth $21.5 billion. Its good economic news is good news for Australian businesses - and investors – too.
1NZ Economics/ANZ Economic Outlook/ June 2014
2 Australian Government Department of Foreign Affairs and Trade http://dfat.gov.au/publications/tgs/index.html