Growth in 2017 is expected to remain consistent, at a similar level to 2016, despite slowing growth in China (its leading trading partner) which will nevertheless impact on the economy. Activity will be sustained by domestic demand, encouraged by a more relaxed monetary policy and low unemployment (4.9% in September 2016). The cut in policy rate by the central bank as well as the strong increase in immigration will drive household consumption. The rise in property prices will also bolster private consumption, but the high level of household debt (165% of gross disposable income) represents a risk for the stability of the banking system. The construction sector will be underpinned by residential property investment and the continuation of the reconstruction projects following the earthquakes of 2011 and 2016. Investment in the agricultural sector is expected to pick up in 2017 with a gradual increase in product prices and improved productivity. The dairy (a quarter of exports) and fruit (apples and kiwi) sectors, together with the wood segment, will perform better. However, farmers are heavily indebted as a result of the losses incurred because of low prices (in particular milk), making them more vulnerable to possible shocks (drought, earthquakes). The increased demand from the United States and Australia for these products however will help partly offset the slowdown in demand from China. Inflation is likely to rise, closing with the central bank’s target rate (2%). This rise reflects increased domestic demand, the gradual recovery in oil and gas prices and the stabilization of the exchange rate. The central bank (RBNZ) cut its policy rates by 100 base points between October 2015 and November 2016 (from 2.75% to 1.75%), and is expected to continue its monetary policy easing in 2017 in order to boost domestic demand. The authorities do also have a certain amount of room for maneuver with the budget (low debt and small deficit) to boost activity if needed.

The budget deficit should continue to contract and near equilibrium. The restoration of budget surpluses is a priority objective of the government in so far as the country is mainly indebted to non-residents and is facing an ever-increasing hole in its social security system (ageing population). At the same time, the public debt is likely to decline further, even though already at a very low level compared to other OECD countries. The current account balance, with a structural deficit because of the income balance deficit, is expected to worsen slightly in 2017. The growth in exports (in particular agricultural products) will not completely offset that in imports, boosted by strong domestic demand. In addition, the Trans-Pacific Partnership (TPP) agreement, signed in October 2015, is set to be called into question following the election of Donald Trump, who is against ratification of the agreement, as President of the United States. Another multilateral agreement (the Regional Comprehensive Economic Partnership (RCEP)) is currently in negotiation and includes among others China, India, Japan and South Korea. This new agreement could substitute for the TPP by creating new opportunities for the country, in particular in the agriculture and dairy sector. The signing of the agreement could thus enable the country to increase the contribution of exports to the GDP to 40% by 2025, compared with 30% in 2016, as hoped by the authorities. The New Zealand banking sector is fairly well capitalized, even if the low household savings rate (3%) forces the banks to borrow on the financial markets and thus be exposed to the volatility of these. The sector is highly concentrated and dominated by just four banks, which, together with a high level of debt among households and farmers, is also a source of vulnerability.

John Key, Prime Minister since 2008, announced his resignation on 5 December 2016, one year before the end of his term. The leader of the National Party, expected to run for a fourth term, cited family reasons for leaving. His successor, Bill English, will benefit from a favorable economic context before the November 2017 General Election. The business climate is extremely positive and the country was in first place (out of 190 countries) in the most recent Doing Business survey by the World Bank. It is in the lead in particular for the ease of setting up a business, obtaining credit and the protection for minority investors.