Estudos Económicos
New Zealand

New Zealand

Population 4,7 million
GDP 38 278 US$
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Synthesis

MAJOR MACRO ECONOMIC INDICATORS

  2015 2016 2017(f) 2018(f)
GDP growth (%) 3.2 3.6 2.8 2.9
Inflation (yearly average, %) 0.3 0.6 2.2 2.0
Budget balance (% GDP) * 0.6 0.9 0.1 -0.1
Current account balance (% GDP) -3.4 -2.8 -3.6 -3.8
Public debt (% GDP) 29.5 29.2 26.4 23.7

* 2017/2018 fiscal year (1 July to 30 June) (f): forecast

STRENGTHS

  • Proximity to Asia and Australia
  • Tourist appeal and large agricultural sector
  • Small public debt; balanced public accounts
  • Dynamic demographics thanks to immigration
  • Quality of life

WEAKNESSES

  • Economy dependent on foreign investment
  • High household and corporate debt levels (particularly in the agriculture sector)
  • Dependence on demand from China
  • Shortages of skilled labour
  • Housing shortage
  • Weakness in R&D

RISK ASSESSMENT

Dynamic growth despite continuing dangers of the housing market

Sustained by domestic demand, activity, is expected to remain firm in 2018. Household consumption will likely be boosted by higher wages, falling unemployment (4.6% in October 2017), and continuing low interest rates (1.75% in November 2017). In addition, lower income households will receive increased family allowances, a 5% increase in the minimum wage, and a reduction in income tax. Public spending is expected to help sustain economic activity through investments in infrastructure and social welfare.

Exports are set to be revitalised, thanks to the improving terms of trade linked with rising milk prices (one-quarter of exports), and by firm external demand. The arboriculture (apple and kiwi) and wood sectors are also likely to perform better. However, the level of indebtedness among farmers is high due to the need to offset losses caused by persistent low prices, which means that they are vulnerable to price movements and any major climate shocks (e.g. droughts, earthquakes). The tourism sector is also expected to perform strongly, although its contribution to growth will likely be smaller.

The monetary policy imposed by the central bank is likely to be less accommodating in 2018, due to the goal of maintaining inflation at its target level (1-3%). The slowdown in the property market and in credit will help limit the risks associated with higher financing costs. The housing market is expected to contract because of the reduction in demand linked with the excess cost of housing, the high levels of household indebtedness (170% of disposable income) and the reduction in immigration. The construction sector is likely to feel the effects of this slowdown, and also to suffer from a labour shortage.

 

Strong budget situation and current account deficit under control

The budget is expected to be very close to balance. Spending on social and health care is set to continue to be the main expenditure item, especially as these are due to rise under the “Family Income” programme. This covers income tax exemptions for those on very low incomes, as well as increases in family allowances. Substantial infrastructure investments are also expected, notably with the reconstruction of the roads and railways damaged in the November 2016 major earthquake. The increase in spending should be limited, however, and offset by a slight increase in revenues. Public debt, already low, will likely fall, but will continue to be held by non-residents. In addition, the country will have to find a way of dealing with an increasing deficit in its social security system (ageing population).

The current account is expected to worsen slightly in 2018. This is subject to a structural deficit due to the income balance deficit (3% of GDP in 2016) linked with the repayment of external debt (90% of GDP), the low domestic savings rate, and the outward transfer of profits by foreign firms. Moreover, the balance of trade is set to remain in deficit (1% of GDP), as the growth of exports will still not cover that of imports. The balance of services, however, should be in surplus (1.8% of GDP), mainly thanks to tourism.

The New Zealand banking sector is essentially well capitalised, although the low household savings rate means that banks have to borrow on the financial markets and are thus exposed to their volatility. The level of concentration in the sector –just four key banks (mainly subsidiaries of Australian banks) – and high household debt levels are also potential areas of vulnerability.

 

A new and fragile coalition government

In the September 2017 parliamentary elections, the conservative National Party, in office since 2008, lead the vote at 45% (56 seats out of 120), but failed to obtain an absolute majority and thus form a government. Following five weeks of negotiations, the centre-left Labour Party (second place with 46 seats) formed a coalition government with the support of the populist New Zealand First party (9 seats) and the Green Party (8 seats). Led by the new Prime Minister, the Labour Party’s Jacinda Ardern, the government’s policies are expected to be less welcoming in terms of immigration and foreign investors, and to be more expansionist regarding the budget. Nevertheless, disagreements between the coalition member parties could derail the coalition, especially as the National Party will be a powerful opposition force in Parliament.

In economic terms, the reduction in business failures looks set to continue, and the business climate is strongly positive, with the country situated at the top (out of 190 countries) of the World Bank “Doing Business 2018” rankings.

 

Last update : January 2018

Payments

 

 

Bills of exchange or promissory notes are not frequently used for commercial transactions inNew Zealand.

Although cheques are still used in everyday transactions, payment by electronic  funds transfer or credit card has been developing rapidly.

 

Wire transfers or SWIFT bank transfers are the most commonly used payment method for domestic and international transactions. Most of the country’s banks are connected to the SWIFT network, which offers a rapid, cost-efficient means of effecting payments.

 

TheNew Zealanddollar, along with the main foreign currencies, is now also part of the Continuous Linked Settlement System / CLS, a highly automated interbank transfer system for processing international trade settlements.

 

Debt Collection

 

The collection process starts with the serving of a final notice, a “seven-day letter” whereby the creditor notifies the debtor of his payment obligations including any contractual interest due.

 

Without payment by the debtor company of an uncontested payable claim exceeding 1,000 NZ$ (or after obtaining a ruling), the creditor may summon the debtor to settle his debt or to enter into a compromise within 15 days or face a winding-up petition with his company considered insolvent (Statutory demand under section 289 of the Companies Act 1993).

 

Under ordinary proceedings, once a statement of claim (summons) has been filed and where debtors have no grounds on which to dispute claims, creditors may solicit a fast-track procedure enabling them to obtain an executory order by issuing the debtor with an ‘application for summary judgement’.

 

This petition must be accompanied by an affidavit (a written sworn statement by the plaintiff attesting to the claim’s existence) along with supporting documents authenticating the unpaid claim.

 

For more complex or disputed claims, creditors must instigate standard civil proceedings, an arduous, often lengthy process lasting up to two years.

Proceedings are heard by District Courts or, for claims exceeding 200,000 NZ$, by the High Court.

Appeals from theses courts go to the Court of Appeal, and any further appeal is to the Supreme Court of New Zealand.

 

The High Court provides for eligible cases to proceed via a fast track procedure, for example in the fields of insurance, banking, and finance, disputes on intellectual property rights, merchandise transport, commercial contracts, and merchandise import/export.

 

During the preliminary phase, the Court examines the case documents authenticating the parties’ respective claims. During the subsequent “discovery phase”, the parties’ lawyers may request their adversaries to submit any proof or witness testimony that is relevant to the case and duly examine the case documents submitted.

 

An amendment to the High Court and District Courts Rules, effective as of 1st February 2012, encourages the submission of evidence by electronic means (e-discovery), like e-mails, real time computer communications, accounting databases, unless the litigant obtains an exemption from the judge.

 

Likewise, during the case management conference, the judge may order standard discovery or tailored discovery.

 

Before handing down its judgement, the court examines the case at hearing, considers the lawyers’ arguments and holds an adversarial hearing of the witnesses who may be cross-examined by the parties’ lawyers.

 

Arbitration or Alternative Dispute Resolution (ADR), a mediation procedure, may also be used to resolve disputes and obtain more rapid out-of-court settlements, often at a lower cost than through the ordinary proceedings.

New Zealand
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