AS & A2 – NZ and Global Updates

NZ Global updateIt is important that you are aware of current issues to do with the New Zealand and the World Economy. Examiners always like students to relate current issues to the economic theory as it gives a good impression of being well read in the subject. Only use these indicators if it is applicable to the question.

Indicators that you might want to mention are below. Notice how low global interest rates are as economic conditions have warranted greater borrowing and spending in the world economy.

The New Zealand Economy
New Zealand’s GDP expanded by 0.2 percent in the June quarter. The result was consistent with consensus forecasts, although some forecasters were expecting a decline in economic activity (due to the flow-on effects of the drought experienced earlier in the year). On an annual average basis the economy expanded by 2.7 percent over the year to the June quarter. The current account deficit totaled $9,099 million in the year ended 30 June 2013, equivalent to 4.3 percent of gross domestic product. Strong economic growth has been forecast for the second half of 2013 as the economy recovers from the drought conditions experienced earlier in the year. The annual rate of inflation is forecast to rise from its current low level back within the Reserve Bank’s medium term inflation target band of 1 – 3 percent over the coming year. The Bank is expected to commence tightening monetary policy (increase interest rates) next year as a result.

The Global Economy
The global economy continues to at very low levels. However most of the economies of the European Union remain in recession (two consecutive quarters of negative GDP). US growth has increased to 2.5% which indicates that the job market is now picking up and demand is more prevalent. Even considering the recent issue with the debt ceiling the US dollar (what is seen as the world reserve currency) has remained relatively stable – in fact it strengthened after agreement was made in Congress.

However the major emerging markets face slower growth and will take longer to come out of the downward cycle. Meanwhile, global financial markets have faced considerable volatility, owing to prospective changes in US monetary policy, a new policy in Japan, and instability in China’s banking system.

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