Over the years, the New Zealand economy has changed from being one of the most regulated in the OECD to one of the least regulated. The government aims to lift the long-term performance of the economy through: building a stronger economy; investment in world-class infrastructure; better public services; and by building a safer New Zealand.
The global sentiments are very positive toward New Zealand. It continues to be a popular overseas visitor destination and tourism is an important source of export income. Inward immigration is at record levels. The World Bank’s ‘Doing Business 2017: Equal Opportunities for All’ report ranked New Zealand as the easiest country in the world to do business, bumping Singapore off the top spot. Researchers at the Legatum Institute think tank put New Zealand at the top of the world’s best places to live, because of its “unrivaled ability to turn its wealth into prosperity” – a broader measure than just money.
The economic omens for New Zealand this year and the immediate future are looking positive. The top independent world economic brains in the OECD and the IMF expect New Zealand to continue to outstrip most developed countries in the next couple of years.
Review of 2016
Momentum across the New Zealand economy is strong. The latest GDP figures which rose to 3.6% are not only historically strong and above trend, but right in the top echelons of growth performance across the developed world.
Business sentiment is strong (and rising). Job advertisements across the board has risen for seven consecutive months. Skill shortages are becoming more widespread. The construction sector remains a key contributor.
Population growth should remain at 2% or thereabouts for some time yet. Tourists continue to flood in as new airlines arrive and new routes are developed.
A strengthening labor market, net wealth gains, historically low interest rates and the competitive retail environment are all supporting consumption growth both at an overall level and more recently on a per capita basis.
From an Islamic finance perspective, Awqaf NZ commissioned a Sukuk Waqf study in partnership with the International Shari’ah Research Academy for Islamic Finance of Malaysia. A Shariah compliant retirement savings fund called Amanah Ethical launched a couple of years ago is gaining momentum in the New Zealand marketplace.
Preview of 2017
The underlying economic performance story is expected to continue for New Zealand in the next 12 months. Projected annual GDP growth forecasts range between 3½% and 4% for the next 12 months or so.
Domestic demand is leading this growth charge. Private consumption is forecasted to grow at approximately 3.5% through 2017, with growth roughly stable at 1.5% in per capita terms.
Residential investment growth is likely to moderate at close to 12%; other fixed asset investments are forecasted to lift, with total investment forecasted to grow 4.5% in 2017 after a 2.7% growth in 2016. Final domestic demand is expected to expand at a 3.6% pace in both 2016 and 2017.
The growth from net exports is forecasted to remain roughly flat over the next few years.
Pressures are evident in construction, largely due to a lack of skilled staff to meet the bow wave of work coming over the next few years. This will lead to firms investing in capital (capital deepening), education and training in the next 12 months and more.
A strong New Zealand dollar scenario will continue given that the New Zealand economy continues to look strong on many relative measures.
The tourism sector is expected to continue to grow with the number of arrivals expected to increase over the next 12 months or so.
High migration inflows are creating tension and pressure on housing and infrastructure, and currently look to be dampening wage growth. The current immigration policy framework may warrant a review given there are continued skill shortages despite high migration levels.
Awqaf NZ will keep developing its Sukuk Waqf initiative and has planned a number of workshops with both Waqf sector stakeholders and the Islamic finance and Shariah experts across key global markets.
Challenges remain for the dairy sector due to low dairy prices, falling land values and tight cash-flows due to losses. A positive cash flow for the typical dairy farmer will not be restored until 2017/18 (breakeven beckons this season), but with dairy prices up the outlook is improving.
With the general election looming in 2017, there will be election goodies on offer.
Conclusion
Conventional factors are pointing toward stronger New Zealand inflation being around the corner, with above-trend growth, elevated construction cost inflation, a falling unemployment rate, a positive output gap and increased difficulty finding labor.
The global scene remains the key source of risk that could alter the solid domestic picture. However, the New Zealand economy is in a better place structurally than it has been in the past, and has the ability to face any challenges with its fiscal and monetary policy.
A notable absentee from all this good news is the lack of participation of the Islamic finance sector in the New Zealand economy. With significant focus, an ideal platform for infrastructure development and foreign direct investment within this growing and steady economy, the opportunities are ripe for the picking for courageous industry players.
Mohamed Nalar is the trustee and board member of Awqaf New Zealand. He can be contacted at [email protected].