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NZD: Forces mitigating growth slowdown – Goldman Sachs

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 28, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Research Team at Goldman Sachs, suggests that there are several important factors supporting growth in NZ and mitigating the downside risks.

    Key Quotes

    Financial conditions: Although several exogenous factors are impacting NZ’s growth outlook at the moment (ie, earthquakes, droughts, global prices), we continue to lean heavily on our proprietary financial conditions index to frame our views. And, overall, the pronounced easing in financial conditions – in particular since the current RBNZ easing cycle commenced – appears to be providing an effective backstop to the deceleration in momentum. Indeed, by virtue of the -75bp cut to the OCR, ~15% fall in the NZD, and ~+6.5% rally in NZ equities, we estimate financial conditions in NZ to be as accommodative as they have been at any point in the past 25 years. Encouragingly, key surveys also suggest this shift in financial conditions has gained traction.

    Tourism spending: The dairy sector aside, tourism is the second largest industry in the NZ economy (~8.5% of GDP) and there are there are now clear signs of strengthening momentum. Although we are of the view that the inflow of permanent migrants will taper, the competitive level of the NZD has contributed to a solid rise in arrivals and accommodation guest stays over the past 18 months.

    Housing construction (ex-Canterbury): Even on the assumption that net migration inflows ease the demand for new housing over time, the current pipeline of residential construction should sustain strong growth in activity over the coming year at least.

    Federal election: NZ is scheduled to hold its next general election no later than 18 November 2017. While we are assuming a modest fiscal drag for most of the interim, NZ’s strong public finance position allows for significant pump-priming of the economy should an unexpectedly large slowdown emerge.”
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