In short, the story we tell in the February Overview remains a familiar one. As expected2013 saw the New Zealand economy accelerate, boosted by a big lift in constructionactivity on the back of the Canterbury rebuild, a recovery from the effects of lastsummer’s drought and strong house price growth which in turn supported a pickup inconsumer spending. Meanwhile, the high exchange rate kept a lid on inflation pressure.In many respects our forecasts for 2014 represent the next phase of the same narrative.GDP growth is forecast to accelerate to 4.2% this year. In addition to continued strengthin construction activity, a key feature of the economy this year is likely to be the boostto national income from New Zealand’s record high terms of trade. Strong export pricesrecently pushed New Zealand’s terms of trade to a 40 year high, at a time when globalgrowth has been fairly lacklustre. Importantly, while we think the terms of trade will fallover the next year, we have become increasingly convinced that the strength in demandfrom China for New Zealand’s key export commodities will persist for some time yet.
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