New Zealand economic outlook

Grant SpencerReserve Bank of New ZealandSeptember 2012

Eriksens ActuarialAuckland, 25 September 2012

...and this presentation is not financial advice

Off the record please…

Trading partner GDP growth (annual)

Weaker global outlook

2005 2007 2009 2011 2013 -6

-4

-2

0

2

4

6

8

10

12

-6

-4

-2

0

2

4

6

8

10

12% %

United States

Australia

Asia ex-Japan

Euro area

Projection

Financial markets supported by Central Bank actions

0

5

10

15

20

25

30

35

2004 2005 2006 2007 2008 2009 2010 2011 2012

Central Bank Assets - % of Nom. GDP

ECB

Fed

BoE

Reflected in lower bond yields

5

0

1

2

3

4

5

6

7

8

0

1

2

3

4

5

6

7

8

2010 2011 2012

10-year Government Bond Yields

NZ USGermany ItalySpain

% %

Global risk appetite is supporting NZD

6

2400

2500

2600

2700

2800

2900

3000

3100

3200

3300

60

62

64

66

68

70

72

74

76

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12

NZD vs Global Equities

NZ TWI MSCI World Index

Which is holding back export growth

7

Export volumes

2008 2009 2010 2011 2012 70

80

90

100

110

120

70

80

90

100

110

120

Index Index

Total

Travelservices

Global developments are slowing NZ’s progress

8

• Weaker world demand and commodity prices

• High NZD putting pressure on export sector

• Offshore funding for banks easier but still expensive

Consumption stronger but savings continue to recover

9

2004 2006 2008 2010 2012 2014 -10

-8

-6

-4

-2

0

2

4

-3

-2

-1

0

1

2

3

4

5

6

7

% % of disp. income

Household savingrate (RHS)

Annual averageconsumption

growth

Household saving rate and consumption

Reflected in weak credit – strong deposits

Annual bank credit and deposit growth

10

2005 2006 2007 2008 2009 2010 2011 20120

2

4

6

8

10

12

14

16

18

0

2

4

6

8

10

12

14

16

18

% %

Retail fundinggrowth

Household creditgrowth

Strong recovery in residential investment

11

Residential investment

2005 2007 2009 2011 2013 2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

% of potential % of potential

Total

Ex-Canterburyrebuild

Projection

Stronger house prices – for a period

12

Annual house price inflation

2005 2007 2009 2011 2013 -15

-10

-5

0

5

10

15

20

-15

-10

-5

0

5

10

15

20% %

Projection

Nationwide

Christchurch

Government consolidatingFiscal impulse (share of nominal GDP)

13

2008 2009 2010 2011 2012 2013 2014 2015-3

-2

-1

0

1

2

3

4

5

-3

-2

-1

0

1

2

3

4

5% %

Projection

Net result: gradual recovery in GDP growth

14

GDP growth (annual)

2005 2007 2009 2011 2013 -4

-3

-2

-1

0

1

2

3

4

5

-4

-3

-2

-1

0

1

2

3

4

5% %

Projection

Inflation pressures remain moderate

15

Consumer price inflation

2005 2007 2009 2011 2013 0

1

2

3

4

5

6

0

1

2

3

4

5

6

% %

Projection

Interest rates remain flat

16

90-day interest rate

2005 2007 2009 2011 2013 0

1

2

3

4

5

6

7

8

9

10

0

1

2

3

4

5

6

7

8

9

10

Sep

Projection

% %

JuneMPS

MPS

End of presentation

Public debt overhang remains a major issue

18

Gross government debt as percent of GDP

(IMF WEO, April 2012)

Greece Italy Portugal France Spain Ireland US NZ Australia0

20

40

60

80

100

120

140

160

180

0

20

40

60

80

100

120

140

160

180

200720112014

% %

European bond rates:convergence -divergence

0

2

4

6

8

10

12

14

16

18

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

10-year government bond yields

PortugalIrelandItalySpainFranceGermany

Euro begins trading

Canterbury rebuild profile

2011 2013 2015 2017 20190.0

0.4

0.8

1.2

1.6

0.0

0.4

0.8

1.2

1.6

% %

Canterbury rebuild profile (share of potential GDP)