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GLOBAL BUSINESS FINANCE

CIA-II

COMPARISION OF NEW ZEALANDSS ECONOMY IN 1975

WITH 2010 BASED ON MACRO ECONOMIC VARIABLES


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NEW ZEALAND ECONOMY

New Zealand's economy has traditionally been based on a foundation of exports from its

very efficient agricultural system. Leading agricultural exports include meat, dairy

products, forest products, fruit and vegetables, fish, and wool. New Zealand was a direct beneficiary of many of the reforms achieved under the Uruguay Round of trade

negotiations, with agriculture in general and the dairy sector in particular enjoying many

new trade opportunities. The country has substantial hydroelectric power and sizable

reserves of natural gas. Leading manufacturing sectors are food processing, metal

fabrication, and wood and paper products.

Since 1984, government subsidies including for agriculture have been eliminated; import

regulations have been liberalized; exchange rates have been freely floated; controls on

interest rates, wages, and prices have been removed; and marginal rates of taxationreduced. Tight monetary policy and major efforts to reduce the government budget deficit

brought the inflation rate down from an annual rate of more than 18% in 1987. The

restructuring and sale of government-owned enterprises in the 1990s reduced

government's role in the economy and permitted the retirement of some public debt.

Economic growth, which had slowed in 1997 and 1998 due to the negative effects of the

Asian financial crisis and two successive years of drought, rebounded in 1999. A low

New Zealand dollar, favorable weather, and high commodity prices have boosted exports,

and the economy is estimated to have grown by 2.5% in 2000. Growth is likely to slow in

2001 given the economic slowdown in important export markets. The return of

substantial economic growth led the unemployment rate to drop from 7.8% in 1999 to

5.2% in mid-2001, the lowest rate in 13 years.

The large current account deficit, which stood at more than 8% of GDP in 2000, has been

a constant source of concern for New Zealand policymakers. The rebound in the export

sector is expected to help narrow the deficit to lower levels.

New Zealand's economy has been helped by strong economic relations with Australia.Australia and New Zealand are partners in "Closer Economic Relations" (CER), which

allows for free trade in goods and most services. Since 1990, CER has created a single

market of more than 22 million people, and this has provided new opportunities for New

Zealand exporters. Australia is now the destination of 19% of New Zealand's exports,

compared to 14% in 1983. Both sides also have agreed to consider extending CER to


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product standardization and taxation policy. New Zealand initialed a free trade agreement

with Singapore in September 2000 and is seeking other bilateral/regional trade

agreements in the Pacific area.

U.S. goods and services have been competitive in New Zealand, though the strong U.S.dollar has created challenges for U.S. exporters in 2001. The market-led economy offers

many opportunities for U.S. exporters and investors. Investment opportunities exist in

chemicals, food preparation, finance, tourism, and forest products, as well as in

franchising. The best sales prospects are for medical equipment, information technology,

and general consumer goods. On the agricultural side, the best prospects are for fresh

fruit, snack foods, specialized grocery items such as organic foods, and soybean meal.

New Zealand welcomes and encourages foreign investment without discrimination. The

Overseas Investment Commission (OIC) must give consent to foreign investments thatwould control 25% of more of businesses or property worth more than NZ$50 million.

Restrictions and approval requirements also apply to certain investments in land and in

the commercial fishing industry. In practice, OIC approval requirements have not been an

obstacle for U.S. investors. OIC consent is based on a national interest determination, but

no performance requirements are attached to foreign direct investment after consent is

given. Full remittance of profits and capital is permitted through normal banking

channels.

A number of U.S. companies have subsidiary branches in New Zealand. Many operatethrough local agents, and some are in association in joint ventures. The American

Chamber of Commerce is active in New Zealand, with its main office in Auckland and a

branch committee in Wellington.


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GDP (Gross Domestic Product)

the gross domestic product (GDP) or gross domestic income (GDI) is one of the measures

of national income and output for a given country's economy. GDP can be defined in

three ways, all of which are conceptually identical. First, it is equal to the total

expenditures for all final goods and services produced within the country in a stipulated

period of time (usually a 365-day year). Second, it is equal to the sum of the value added

at every stage of production (the intermediate stages) by all the industries within a

country, plus taxes less subsidies on products, in the period.

New Zealand Gross Domestic Product is worth 125 billion dollars or 0.20% of the world

economy, according to the World Bank. From 1960 until 2009, New Zealand's average

Gross Domestic Product was 39.48 billion dollars reaching an historical high of 134.68billion dollars in December of 2007 and a record low of 5.18 billion dollars in December

of 1968. Over the past 20 years the government has transformed New Zealand from an

agrarian economy dependent on concessionary British market access to a more

industrialized, free market economy that can compete globally. This dynamic growth has

boosted real incomes - but left behind some at the bottom of the ladder - and broadened

and deepened the technological capabilities of the industrial sector.

Ye

ar

Gross Domestic

Product

(NZ$ millions)

1 US dollar

exchange

Inflationindex

(2000=100

)

Per capitaincome

(as % of

USA)

19

8022,976 NZD 1.02 30 58.67

19

8545,003 NZD 2.00 53 38.93

19

9073,745 NZD 1.67 84 55.80

20

00114,563 NZD 2.18 100 38.98

20 154,108 NZD 1.41 113 62.99


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05


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INVESTMENT

New Zealand's net international liabilities were $161.0 billion, or 85.9 percent of GDP

compared with 90.7 percent at 31 March 2009.New Zealand's foreign currency

denominated external debt was $116.4 billion, of which 93.3 percent was hedged.

New Zealand investment abroad of $127.6 billion was mostly in Australia and the United

States

68.4 percent of the $288.6 billion of foreign investment in New Zealand was from

Australia, the United Kingdom, and the United States.

The value of investment from Japan and the United States was $9.4 billion lower than at

31 March 2009.

Australian investment in New Zealand reached $100.0 billion for the first time.


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Inflation

The inflation rate in New Zealand was last reported at 4.5 percent in the first quarter of 2011.

From 1915 until 2010, the average inflation rate in New Zealand was 4.67 percent reaching an

historical high of 44.00 percent in September of 1918 and a record low of -100.00 percent in June

of 1915. Inflation rate refers to a general rise in prices measured against a standard level of

purchasing power. The most well known measures of Inflation are the CPI which measures

consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic

economy. This page includes: New Zealand Inflation Rate chart, historical data and news.

A basket of goods and servicesthat cost $1.00in quarter 4 of

1975would have cost $8.21in quarter 4 of 2010

Total percentage change 721.4%

Number of years difference 35.00

Compound average annual rate 6.2%

Decline in purchasing power 87.8%

Index value for 1975 quarter 4 is 138.4

Index value for 2010 quarter 4 is 1137.0


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Imports

n import is any good or service brought into one country from another country in a legitimate

fashion, typically for use in trade. Import goods or services are provided to domestic consumers

by foreign producers. An import in the receiving country is an export to the sending country.

Imports, along with exports, form the basis of international trade. Import of goods normally

requires involvement of the Customs authorities in both the country of import and the country of

export and are often subject to import quotas, tariffs and trade agreements. when the "imports"

are the set of goods and services imported, "Imports" also means the economic value of all goods

and services that are imported. The macroeconomic variable I usually stands for the value of

these imports over a given period of time, usually one year.


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EXPORT

Export goods or services are provided to foreign consumers by domestic producers. It is a

good that is sent to another country for sale. Export of commercial quantities of goods

normally requires involvement of the customs authorities in both the country of export

and the country of import. The advent of small trades over the internet such as through

Amazon and e-Bay have largely bypassed the involvement of Customs in many countries

due to the low individual values of these trades. Nonetheless, these small exports are still

subject to legal restrictions applied by the country of export.


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UNEMPLOYMENT RATE IN NEW ZEALAND

The labour force is defined as the number of people employed plus the number

unemployed but seeking work. The participation rate is the number of people in the

labour force divided by the size of the adult civilian noninstitutional population (or by the

population of working age that is not institutionalised). The nonlabour force includes

those who are not looking for work, those who are institutionalised such as in prisons or

psychiatric wards, stay-at home spouses, kids, and those serving in the military. The

unemployment level is defined as the labour force minus the number of people currently

employed. The unemployment rate is defined as the level of unemployment divided by

the labour force. The employment rate is defined as the number of people currently

employed divided by the adult population (or by the population of working age). In these

statistics, self-employed people are counted as employed.

Natural rate of unemployment This is the summation of frictional and structural

unemployment. It is the lowest rate of unemployment that a stable economy can expect to

achieve, seeing as some frictional and structural unemployment is inevitable. Economists

do not agree on the natural rate, with estimates ranging from 1% to 5%, or on its meaning

some associate it with "non-accelerating inflation". The estimated rate varies from

country to country and from time to time.

The unemployment rate in New Zealand was last reported at 6.6 percent in the first

quarter of 2011. From 1985 until 2010, New Zealand's Unemployment Rate averaged

6.25 percent reaching an historical high of 11.20 percent in September of 1991 and a

record low of 3.50 percent in December of 2007. The labour force is defined as the

number of people employed plus the number unemployed but seeking work. The

nonlabour force includes those who are not looking for work, those who are

institutionalised and those serving in the military.


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The employment rate in1985 was 3.5 percent which increased to 5 % of the labour force

in 2010.


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POPULATION

The total population in New Zealand grew to 4.3 million in 2009 from 2.4 million in 1960, a 180

percent increase in just 50 years. New Zealand has 0.06 percent of the worlds total population

which means that one person in every 1616 people on the planet is a resident of New Zealand. the

population of the country in 1975 was 3.08 billion and 4.35 billon in 2010.


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INTEREST RATES

The benchmark interest rate in New Zealand was last reported at 2.5 percent. In New

Zealand, interest rates decisions are taken by the Reserve Bank of New Zealand. The

official interest rate is the Official Cash Rate (OCR). The OCR was introduced in March

1999 and is reviewed eight times a year by the Bank. The OCR influences the price of

borrowing money in New Zealand and provides the Reserve Bank with a means of

influencing the level of economic activity and inflation. ,From 1985 until 2010, New

Zealand's average interest rate was 8.75 percent reaching an historical high of 67.32

percent in March of 1985 and a record low of 2.50 percent in April of 2009.

the interest rate in 1985 was 20% and in 2010 it reduced drastically to 2.5%.


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INDUSTRIAL PRODUCTION

Industrial Production is an economic report that measures changes in output for the

industrial sector of the economy. The industrial sector includes manufacturing, mining,

and utilities. Although these sectors contribute only a small portion of GDP (Gross

Domestic Product), they are highly sensitive to interest rates and consumer demand. This

makes Industrial Production an important tool for forecasting future GDP and economic

performance. Industrial Production figures are also used by central banks to measure

inflation, as high levels of industrial production can lead to uncontrolled levels of

consumption and rapid inflation.

Industrial Production in New Zealand remained unchanged in the third quarter of 2010.

Industrial production measures changes in output for the industrial sector of the economy

which includes manufacturing, mining, and utilities. Industrial Production is an important

indicator for economic forecasting and is often used to measure inflation pressures as

high levels of industrial production can lead to sudden changes in prices. From 1977 until

2010, New Zealand's industrial production averaged 80.79 percent reaching an historical

high of 100.80 percent in September of 2005 and a record low of 58.60 percent in

December of 1977.


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BALANCE OF TRADE-

New Zealand reported a trade surplus equivalent to 605 Million NZD in May of 2011.

New Zealand is greatly dependent on international trade. New Zealand's economy has

traditionally been based on a foundation of exports from its very efficient agricultural

system: meat, dairy products, forest products, fruit and vegetables, fish, and wool. New

Zealand imports mainly machinery and equipment, vehicles and aircraft, petroleum,

electronics, textiles and plastics. Its main trading partners are: Australia, European Union,

The United States, China and Japan.


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New Zealand Dollar Exchange Rate Chart (NZDUSD)

The New Zealand Dollar exchange rate (NZDUSD) appreciated 19.23 percent

during the last 12 months. The New Zealand Dollar spot exchange rate specifies

how much one currency, the NZD, is currently worth in terms of the other, the

USD. While the New Zealand Dollar spot exchange rate is quoted and exchanged in

the same day, the New Zealand Dollar forward rate is quoted today but for delivery

and payment on a specific future date.


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CONCLUSION

Over the past 20 years the government has transformed New Zealand from

an agrarian economy dependent on concessionary British market access to

a more industrialized, free market economy that can compete globally.

This dynamic growth has boosted real incomes - but left behind some at

the bottom of the ladder - and broadened and deepened the technological

capabilities of the industrial sector. Per capita income rose for ten

consecutive years until 2007 in purchasing power parity terms, but fell in

2008-09. Debt-driven consumer spending drove robust growth in the first

half of the decade, helping fuel a large balance of payments deficit that

posed a challenge for economic managers. Inflationary pressures causedthe central bank to raise its key rate steadily from January 2004 until it

was among the highest in the OECD in 2007-08; international capital

inflows attracted to the high rates further strengthened the currency and

housing market, however, aggravating the current account deficit. The

economy fell into recession before the start of the global financial crisis

and contracted for five consecutive quarters in 2008-09. In line with

global peers, the central bank cut interest rates aggressively and the

government developed fiscal stimulus measures. The economy posted a

1.7% decline in 2009, but pulled out of recession late in the year, and

achieved 2.1% growth in 2010. Nevertheless, key trade sectors remain

vulnerable to weak external demand. The government plans to raise

productivity growth and develop infrastructure, while reining in

government spending.

There has been a tremendous difference in the interest rates from 20% in

1975 to 2.5 %in 2010.

The value of New Zealand dollars has depreciated with respect to that in

1975.


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