NZ's economy making serious traction
Growth in Waikato farm building consents is a pointer to how the New Zealand economy is standing out from the global crowd, says a senior economist.
Doug Steel of the BNZ said in the past 12 months building consents for Waikato farms were valued at $52 million, compared to $34m in the previous period.
Speaking to a KPMG and BNZ rural update seminar in Hamilton yesterday, Steel said the New Zealand economy was "standing out hugely" from the crowd and all indicators were pointing north.
Demand from China for protein for its emerging middle-class had resulted in an enormous shift in a short time in the percentage of New Zealand exports going to that country.
Five years ago China was taking under 6 per cent of Kiwi exports, today that figure was 18 per cent. Dairy and forestry had been the biggest contributors but meat was also on the rise and smaller food sectors were "starting to get some serious traction", he said.
While Steel warned the audience not to underestimate the dips and troughs of commodity cycles, which included more milk production from the United States, he predicted dairy prices would remain high for the next 12 months.
New Zealand had just posted a trade surplus with China. New Zealand's biggest volume of imports from China are computers, with mobile phones second.
Steel said the economic growth outlook for New Zealand was so strong that it was outperforming Australia, and could continue to do so for a couple more years.
"New Zealand has added more jobs in the last six months than Australia has. That shows the relative performances. It is showing in the migration statistics, with fewer people going to Australia."
The current $8.30/kg milksolids price forecast, and the prospect of a 7 per cent increase, and maybe more, in milk production this season, would mean $5 billion revenue extra in cash for the country in the 2014 year, Steel said.
Even if next year dairy prices come down, given lag times, the economic benefits would be felt until October 2015.
On the flipside of the economic growth, the biggest issue for agribusiness would be finding labour to support it, he said.
The effect of having to pay higher wages to attract and retain staff would become inflationary.
The Kiwi dollar was considered high but that reflected the economy was doing well, and the positive was cheaper imports.
Asset prices were becoming an issue for the economy - and not just house prices, Steel said.
"Money may be a bit cheap."
Around 70,000 working people had joined Auckland's workforce in the past 12 months - that was equal to a third of Hamilton - but only 6000 houses had been built in that time.
He said with the huge growth in primary exports to China came a "concentration issue". "More than half the wool clip goes to China now, and more than quarter of our dairy products. Each sector is starting to look high. Sheepmeat is now at 20 per cent. At what point do we become too reliant on China - it's worth thinking about."
Steel said he would be surprised if New Zealand posted 6 per cent annual growth as some suggested. He predicted the dollar would stay high even if commodity prices fell slightly next year. If the US stopped printing money as expected, the Kiwi dollar may ease but if interest rates started heading up, the currency should remain strong, he said.