New Zealand At A Glance
New Zealand threatens to move into a pseudo-stagflationary environment. Growth is slowing and we doubt that even the substantial fiscal stimulus that is being delivered will result in a significant increase in the pace of the expansion. Supply issues such as physical capacity constraints, infrastructure bottlenecks, a low unemployment rate, and declining working age population growth are major factors behind the softening. In turn, these drivers create a modicum of inflationary pressure which is exacerbated by a weakening currency and government charge increases. Against this backdrop, the RBNZ seems reluctant to shift interest rates and appears to be keen to use the full flexibility that a target range permits.