Our comprehensive assessment of New Zealand's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect New Zealand, as well as the latest industry developments that could impact New Zealand's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in New Zealand before your competitors.
New Zealand Country Risk
The New Zealand economy is experiencing a gradual deleveraging cycle, which will weigh on real GDP growth over the coming years. While declining oil prices will provide some support to corporate profit margins and economic activity, these positives will likely be offset by the joint deterioration in the dairy and construction sectors, which remain the two key pillars of the economy.
While we believe that the New Zealand government's target for a fiscal surplus in Fiscal Year 2014/15 will not be achieved, the fiscal accounts remain in better health compared with most developed market economies. We expect the country's fiscal accounts to flip to a surplus of 0.1% of GDP in FY2015/16 (July-June) from a deficit that is equivalent to 0.2% of GDP in FY2014/15. This will be supported by continued spending restraint, which should keep government spending...
New Zealand Industry Coverage (13)
New Zealand Agribusiness
BMI View: We believe that increased access to international markets, particularly Taiwan and China, will prove to be the prime growth driver for the agribusiness sector in New Zealand over the medium-to-long term. This will be supportive for both the dairy and livestock segments. The dairy sector in particular will benefit from export demand growth, as many other countries in Asia are facing growing domestic demand and relatively limited production capacity. However, the dairy sector will suffer over the short term due to low prices on the international market. We believe prices will pick up again in 2016.
Milk production growth...
New Zealand Autos
New Zealand auto sales continue to power ahead, in line with BMI's optimistic stance towards the local sales market. Looking at sales trends for H115, a total of 65,574 new vehicles were sold in New Zealand, representing an increase of 5.5% y-o-y, according to figures from New Zealand's Motor Industry Association (MIA). This leaves the market well on course to hit BMI's target of 134,792 units sold over the full year.
Breaking down the headline figure, there were a total of 46,322 passengers cars sold over H115, plus a further 19,252 commercial vehicles (CVs). These sales figures very much tally with BMI's view that CV sales will outstrip PC sales over 2015. According to David Crawford, the CEO of the MIA, June 2015 was the strongest June for new vehicle sales ever and the fifth strongest month of all time.
Food & Drink
New Zealand Food & Drink
BMI View: We continue to forecast New Zealand's real GDP growth rate to slow to 2.4% in 2015, from an estimated 3.1% in 2014. A deteriorating outlook for the crucial dairy sector, together with an ongoing decline in construction growth should offset the positive impact of lower oil prices on growth. The agricultural sector has grown in importance over recent years, driven in large part by the dairy sector. The outlook for dairy production has worsened over recent months. Dairy farmers are facing a double spell this season, as low prices and payouts from cooperatives are concurring with drought conditions over some key producing regions, which will limit herd expansion and increase feed costs.
Headline Industry Data (local currency)
Food consumption value growth (...
New Zealand Infrastructure
BMI View: We expect New Zealand's construction sector to experience a growth slowdown in 2015, due primarily to the limited upside potential for housing demand. The country's property market is highly overvalued and the central bank has put measures in place to make it more difficult for residential developers to borrow, which should help to slow property price growth, and could trigger a 10-15% fall over the next year. This should result in the deceleration of the construction market, but growth will still remain in positive territory at CAGR 4.9% over the next five years.
Key Trends And Developments
The New Zealand Transport Agency (NZTA) has shortlisted three consortiums to build a highway linking Puhoi to Warkworth. The groups...
New Zealand Insurance
BMI View: In 2015 and 2016, the weakness of the NZD will cause premiums in New Zealand's insurance sector to fall in USD terms. Over the medium and long term, premiums in both major segments are expected to expand by around 3-4% annually. In neither case is there a clear catalyst for rapid growth. Some life insurers will benefit from the further development of KiwiSaver products.
Insurance is socialised in New Zealand to a much greater extent than in other comparable countries. In the life segment, the insurers have had to contend with the widespread (if incorrect) view held by New Zealanders that the universal old aged pension paid by the government to people who are aged 65 or over is sufficient for retirement needs. The government has countered...
New Zealand Medical Devices
BMI Industry View: The strengthening of the US dollar has already affected import performance from the USA, the country's main supplier, and we expect this trend to continue in the medium term, with a -0.6% CAGR market growth expected for the 2014-2019 period. The District Health Boards' focus on cost efficiency and a stronger policy on medical device reimbursement are likely to affect the growth prospects of the New Zealand medical device market in 2015 and beyond.
Headline Industry Forecasts
In local currency terms, the market is expected to post steady, if unspectacular, growth in the next few years. In US dollar terms, due to a strengthening dollar, we expect the market CAGR for 2014...
Oil & Gas
New Zealand Oil & Gas
BMI View: Production from redevelopment of existing fields will drive a short-term peak in oil and gas production, though natural declines will inevitably lead production to fall in the medium-to-long term. The country's lack of liquefied natural gas (LNG) infrastructure impedes gas consumption growth, only allowing it to consume as much as it produces. Nevertheless, long-term hydrocarbon potential remains strong with 18 underexplored sedimentary basins outside of the producing Taranaki Basin.
Pharmaceuticals & Healthcare
New Zealand Pharmaceuticals & Healthcare
BMI View: Over the forecast period New Zealand will continue to present a gradually deteriorating operating environment for drugmakers. Pharmac's limited and oversubscribed budget, will not allow for significant expansion in the volume and value of the pharmaceutical market as prices are held down. However, if ratified the Trans Pacific Partnership would likely place great restraints on Pharmac's ability to do so and see New Zealand's regulators forced to accept higher prices for high value pharmaceuticals and biologics. However, a rapidly ageing population and already record levels of insurance claims suggests that far greater private sector participation will be necessary to support such prices.
Headline Expenditure Forecasts
New Zealand Renewables
Non-hydropower renewables account for around 22% of total electricity generation in New Zealand. Significant investment into renewables industry over the past several years has created a situation of oversupply in the market, which, combined with slowing electricity demand, is expected to hinder further expansion of the renewables sector across our forecast period to 2024.
Key Trends And Developments
In August 2014, New Zealand-based Contact Energy opened its 166 megawatt (MW) Te Mihi geothermal plant in New Zealand. The facility comprises two 83MW steam turbines that were installed close to the 53-year-old Wairakei geothermal plant near the town of Taupo. Once the new plant is complete, some of the units at the old station will be decommissioned.
We believe that the residential solar loan programme proposed by New Zealand&#...
New Zealand Retail
BMI View: As a highly developed country, New Zealand has a diverse retail market. High household incomes allow a wide range of retailers to offer innovative solutions and benefit from large consumer spending. Incomes are projected to grow at 2.8% annually on average until 2019 and a rising population will expand the consumer base, however, the market's high maturity will lead to more consolidation.
New Zealand managed to control domestic and regional risks in the last five years, recording healthy growth of economic output. Real GDP rose by 3.3% in 2014, the fastest rate since 2007 when the economy grew by 3.7%. The 2011 earthquake in Christchurch has demanded vast economic resources, which are estimated...
New Zealand Telecommunications
BMI View : Efforts to roll out wireline and mobile broadband infrastructure and services, including to a large proportion of underserved rural areas, will drive growth of New Zealand's telecoms market in the medium term. This will benefit the service provider sector as new customers are hard to come by and there is little more to be done in upselling premium services. The infrastructure aspect will prove most challenging as consumers will be slow to take full advantage of new 3G/4G and fibre networks. Consolidation will continue as operators seek to tap into new markets.
Mobile subscriptions are forecast to rise from 5.855mn in 2014 to 6.324mn by 2019 and a very high penetration rate of 132.5%. Large numbers of inactive accounts are still supported which, at some point in the future, will have...
New Zealand Tourism
BMI View: Tourism in New Zealand represents the second most important share of its GDP, and the forecasted increase in the number of inbounds arrival, in the next five years, confirms that it will remain a key sector. As such, the government and the New Zealand Tourism board have been working to continue making the country an attractive destination through, in particular, marketing campaigns (Middle-earth) and more flight routes to key source countries. We therefore expect the value of the hotel industry to continue growing, reaching USD4.2bn by 2019, and the value of international tourism receipts to follow suit, increasing by 44% between 2015 and 2019.
New Zealand's excellent range of tourist attractions - from ski resorts to beaches, whale-watching and water sports to cosmopolitan city centres - makes the country an enduringly attractive destination for travellers from around the...