New Zealand 2014's 'rock star' economy

Last updated 10:04 07/01/2014
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New Zealand will be the "rock star" economy of 2014, says a leading global bank.

HSBC chief economist for Australia and New Zealand Paul Bloxham says New Zealand's growth is set to outpace most of its developed markets peers, American news channel CNBC reported .

"We think New Zealand will be the rock star economy of 2014," Bloxham told CNBC on Monday.

"Growth is going to pick up pretty solidly this year."

HSBC forecast the Kiwi economy would grow 3.4 per cent in 2014, the fastest pace since 2007 and well above trend growth of 2.5 per cent. It was expected to post growth of 3 per cent for 2013.

Bloxham said there were three key factors contributing to further expansion.

The first was construction spending with the Canterbury rebuild.

"There's an enormous amount of construction that's going into building that region of the economy," he said.

London-based economics research firm Capital Economics has noted reconstruction spending was not expected to peak until 2017, and should continue to boost the economy for some time.

Bloxham said the second driver was the country's housing boom, fuelled by low interest rates and a wave of net immigration during the past year.

While the Reserve Bank tightened rules around home loans in October and was likely to begin hiking rates in the coming months, economists expected residential investment would remain robust, he said.

The final factor was rising dairy prices, driven by strong demand from China.

Dairy prices, which were more than 50 per cent higher than a year ago, were supporting rural incomes, Bloxham told CNBC.

Meanwhile Kathy Lien managing director of BK Asset Management saysthe New Zealand dollar was the "hottest" currency of 2014, CNBC said.

However, CNBC reported Capital Economics Asia economist Daniel Martin, who forecast growth of 3 per cent in 2014, said there were a couple of factors that could hold back New Zealand's growth this year.

"First, New Zealand's two main export markets, Australia and China, are expected to slow," Martin said.

"Second, and more importantly, the Government is looking to return its budget to surplus by 2014-15.

"As such, the strong government consumption growth in the third quarter [of 2013] is unlikely to be sustained." Government spending growth rose to 2.2 per cent quarter-on-quarter in the September period, from 0.1 per cent in the second quarter, contributing to the economy's pickup in during that period.

Nevertheless, many investment strategists recommended betting on assets that were set to benefit from the country's economic surge, in particular the New Zealand dollar, CNBC reported.

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- Fairfax Media

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