New Zealand

Sustained momentum

AA1

LOW RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD185bn (World ranking 51, World Bank 2016)
Population 4.7mn (World ranking 121, World Bank 2016)
Form of state Parliamentary Democracy (Commonwealth)
Head of government Jacinda Ardern
Next elections 2020, general elections
  • Strong economic growth
  • Sound public finances
  • Proximity to Asian markets
  • Favorable demographics
  • The tourism industry
  • Shortage of skilled workers
  • Dependence on agricultural exports
  • High level of household debt
  • Large external debt
  • Vulnerability to natural disasters

Still comfortable

Economic growth is projected to slow but remain at a comfortable range in 2018 (+2.5%/+3%). Tighter financing conditions, weak productivity growth and capacity constraints would act as a drag. Resilience will stem from a better external environment with improving commodity prices and a gradual improvement of external demand. Domestic demand should remain firm. Reasons include the robust labour market and higher household income which sustain a rise in private consumption. At the same time, fiscal policy should become more expansionary.

 

On the domestic side, risks include high household debt (167.5% of disposable income) combined with an adjustment in property prices hamper demand. External challenges include tighter credit conditions could slow investment inflows, weaker demand from China, and downward pressures on dairy prices as competition intensifies.  

Supportive fiscal policy, tightened monetary stance

The fiscal position is strong and management is prudent. Public debt is low by international standards, far below 60% of GDP. Government balance is under control with fiscal balance in surplus since 2015. We foresee policymakers to turn more expansionary in the medium-term to allow for increased social and infrastructure expenditures.

 

Credit conditions are expected to tighten.  First moves include tighter regulation to reduce financial risks. These comprise macro-prudential measures (less favourable tax regime, further requirements for investors) to reduce incentives to invest in housing, contain household debt and reduce the banking system’s exposure to housing. Second, a gradual rise in policy rate is expected as the economy is broadly at capacity and inflation is within the 1% to 3% target.  

Large external debt is a source of vulnerability

The economy is vulnerable to external shocks with a chronic current account deficit and a large external debt. The trade outlook has improved somewhat with a recovery of commodity prices and higher global demand. Lower NZD has also helped improve price competitiveness and support a rise of exports. Yet the impact is somewhat offset by a solid expansion of imports in line with the firm growth of domestic demand. Consequently, the current account deficit remains significant, close to -3% GDP. External debt is also large at 100% GDP.

Trade structure by destination/origin

(% of total)

Exports Rank Imports
China 19%
1
20% China
Australia 17%
2
13% Australia
United States 11%
3
11% United States
Japan 6%
4
7% Japan
Korea, Republic of 3%
5
5% Germany

Trade structure by product

(% of total)

Exports Rank Imports
Dairy products and birds' eggs 23%
1
14% Road vehicles
Meat and meat preparations 13%
2
9% Petroleum, petroleum products and related materials
Cork and wood 7%
3
5% Miscellaneous manufactured articles, n.e.s.
Vegetables and fruits 7%
4
5% Other industrial machinery and parts
Miscellaneous edible products and preparations 4%
5
4% Electrical machinery, apparatus and appliances, n.e.s.

Late payments in New Zealand are not regulated, meaning that interest and collection costs would essentially depend on the court.

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

Courts are fairly efficient in delivering timely decisions, however favoring amicable and pre-legal methods are always advisable. In fact, this is advised as soon as possible, since the risk of the debtor becoming insolvent will impact the chances of recovering the debt over time.

Download the entire collection complexity PDF:

Collection complexity New Zealand

pdf | 831.8 KB

Contact

Contact Euler Hermes

Economic Research Team

research@eulerhermes.com

Contact Mahamoud Islam

Senior Economist for Asia

mahamoud.islam@eulerhermes.com 

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