On January 26th the Governor of the Reserve Bank Alan Bollard announced that the Official Cash Rate (OCR) of New Zealand will be maintained at 2.5 percent.

Allan Bollard explained that since December, financial stability around the world has seen a slight improvement, but was still too fragile to justify raising the OCR. He added that given the moderate pace of the international market and the subdued domestic consumer demand levels, it remains prudent to maintain the OCR at the currently low level.

While detailing the national economic situation, the Governor noted that the New Zealand economy has seen some pick up over the last few months, and inflation has remained low, but an appreciation of the New Zealand dollar is undermining earnings from the export sector. He also indicated that although the OCR was not raised, consumers might still see an hike to retail interest rates, due to increasing costs of international funding and continued periods of economic uncertainty surrounding the Euro debt crisis.

The Reserve Bank’s decision did not come as a surprise to economists in New Zealand or overseas. Prior to the announcement, experts had come to a near unanimous decision that the OCR would not be changed, and is not likely to see any increase or decrease until late 2012 or even January 2013.

The OCR has remained unchanged through 7 rate reviews since it was lowered from 3 percent on March 10th 2011.

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On January 23rd Demographia, an international think-tank, released the latest edition of the annual “Demographia International Housing Affordability Ratings” report, containing an analysis of housing affordability around the world.

The study compared the median house prices in a given market area with the median household income levels in the same region. According to the published results, housing prices in New Zealand are severely unaffordable, and Auckland is the least affordable region, with the average house price being approximately 6.4 times higher than the average pre-tax salary. Christchurch and Tauranga were also seen as severely unaffordable areas, with property prices being 6.3 and 5.9 times higher than wages.

No areas of New Zealand were ranked as being affordable, with a median price multiple of 3.0 or less. Palmerston North was the most affordable area in the country, with a score of 4.1, followed by Napier and Hastings, and Hamilton, both with ratings of 4.8.

According to one of the authors of the report Hugh Pavletich, the high prices of housing in Christchurch are putting a serious hamper on the city’s recovery efforts following the repeated earthquakes in the city. He suggested that the local government and international experts need to investigate new means and urban planning methods in order to improve affordability in Christchurch, and aid its rebuilding.

Internationally, New Zealand ranks as one of the most unaffordable countries for housing, only being outranked by Australia and China, with scores of 5.6 and 12.6 respectively.

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On January 19th Statistics New Zealand released the latest national Consumer Price Index (CPI) for the December quarter of 2011.

The new information showed that during the last three month of the year the CPI fell by 0.3 percent. The drop was largely contributed to a 25 percent decrease in the price of vegetables over the 4th quarter of 2011. Also, telecommunications services saw a significant 3.6 percent decrease in prices in the last quarter of 2011, and the cost of purchasing new household contents and services fell by 1.5 percent. According to Statistics New Zealand, throughout the last quarter of 2011 retailers offered more discounts than during the rest of the year or the third quarter of 2010, leading to the overall lowering of consumer prices in the last three months of the year.

Statistics New Zealand explained that the decrease in produce prices was a seasonal variance, and the quarterly CPI would be 0.1 percent if the effect was removed.

The most significant price increase for the quarter was the cost of transport, which was up by 1.4 percent, mainly due to a 5.8 percent hike to the price of international air fares, a 1.8 percent jump for second hand cars, and 0.9 percent growth to the cost of petrol. According to Statistics New Zealand, the change in the price of airfares is a seasonal effect and was expected for the time period.

The annual inflation figure for the 2011 year now stands at 1.8 percent, and for the year up to the end of the September quarter, the inflation level stood at 4.6 percent. According to Statistics New Zealand, the 2011 annual CPI increase is the first to not include the upward effects of the GST rate increase that occurred in October 2010.

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According to the results of a survey recently conducted by Reuters, international economists are expecting the New Zealand OCR to be left at its current rate, due to the high levels of economic uncertainty around the world, and a lower than expected inflation rate in New Zealand.

Economist who participated in the survey indicated that New Zealand’s Consumer Price Index (CPI) only increased by 0.4 percent in the last three months of the year, and the annual inflation rate slowed to 2.6 percent from an a previously estimated level of 4.6 percent. Early indicators from the Reserve Bank suggest that inflation in the first quarter of 2012 is also expected to remain at approximately 0.4 percent. The Reserve Bank is expected to release the official inflation rate for the December quarter later this week.

Nick Tuffley, chief economist at ASB bank in New Zealand, said that if the currently expected inflation figures are correct, the Reserve Bank will be able to maintain the OCR at the current rate of 2.5 percent, as inflation is currently at an acceptable level. He added that the cash rate could even remain the same throughout all of 2012.

Dominick Stephens, chief economist at Westpac New Zealand, commented on the potential inflation levels in the near future, saying that food prices and the cost of telecommunications will fall in the first quarter of 2012. He also said that if the inflation figures remain as low as expected, the Reserve Bank will not raise the OCR in the near future.

Both economists suggested that the international economic condition at the moment were to uncertain, and the Reserve Bank could not make any large adjustments without more clarity.

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According to the Index for Economic Freedom for 2012, published by the Heritage Foundation and the Wall Street Journal on January 12th and examining economic conditions and market regulations in countries around the world, in 2011 New Zealand was ranked the 4th country in the world for its market freedom, regulatory efficiency, the role of government in the market, freedom from corruption and the effectiveness of the legal system.

New Zealand was given an index score of 82.1, from a possible maximum of 100. The average score across all countries ranked in the index was 59.5, and the average score for New Zealand closest neighbors in the Asia Pacific region was 57.5 points.

The authors of the report noted that New Zealand has one of the most competitive and efficient business environments in the world, with a particularly easy and effective set of regulations for establishing a new company, the national tax regulations, operating a new business, owning property, expanding commercial activity internationally, and for protecting intellectual rights.

On a macro scale, the report praised the long term economical, financial and political stability of New Zealand, but expressed a negative opinion on the high level of spending by the national government.

In the 2012 Index New Zealand’s score dropped by 0.2 percent, ranking the country behind Hong Kong at 89.9 points, Singapore at 87.5 points, and Australia at 83.1 points.

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On January 9th Statistics New Zealand released the country’s trade figures for November 2011, showing that both imports and exports were higher during the month of November 2011 compared to period last year, primarily due to rising prices of commodities.

In November the national trade balance was in deficit by NZD 308 million, with a total export value of NZD 3.9 billion and import value of NZD 4.2 billion.

The value of all imports into New Zealand in November rose by NZD 382 million, compared to imports during the same period in 2010. The rise of 10 percent was driven mainly by greater imports of crude oil and fertilizers.

Exports rose by NZD 251 million in November, which is equivalent to a 6.8 percent jump in the value of exports, compared to November 2010. The increase is primarily due to an hike in the volume of traded butter, cheese and milk powder.

According to Statistics New Zealand, the month of November typically sees a trade deficit, with an average deficit of 16 percent of exports over the previous five Novembers.

The trade balance for New Zealand for the year ended November 2011 was a surplus of over NZD 555 million.

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On December 22nd Statistics New Zealand released the national Gross Domestic Product (GDP) figures for the September quarter, showing that the country’s economic production grew by 0.8 percent in the three month ending in September.

According to Rachel Milicich, the national accounts manager of Statistics New Zealand, throughout the September quarter economic activity was significantly increased in the retail sector, the accommodation industry, and the hospitality industry. The manufacturing sector saw the largest increase in economic activity since 2002, especially from the production of beverage and tobacco products.

During the three months, economic activity in the manufacturing sector increased by 2.3 percent. The retail and restaurant sector saw production increases of 2.5 percent. The finance and business service sector only rose by 0.6 percent. Economic activity in the construction industry was recorded to have contracted by 2.2 percent.

For the 9 months ending in September, economic production in New Zealand grew by 1.3 percent, and the country’s gross national disposable income rose by 2.8 percent.

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On December 19th Westpac bank and the consultancy firm McDermott Miller released a joint report on New Zealanders’ outlooks for the national economy, stating that consumer confidence has fallen sharply over the December quarter.

According to the report, the New Zealand Consumer Confidence Index now stands at 101 points, and has fallen by 10.7 points since the September quarter. The latest drop is sharper than the loss in consumer confidence recorded following the Christchurch earthquakes, and the Index now stands lower than the most pessimistic point throughout the global financial crisis.

The new research indicates that almost 22 percent of New Zealanders expect to see a significant economic downturn in the near future, compared to only 2 percent of people during the September quarter. Approximately 13 percent of New Zealanders believe that now is a good time to purchase large household items, compared to 30 percent in the September quarter.

Richard Miller, Managing Director of strategic planning at McDermott Miller, commented on the results of the Index, saying that consumers from rural regions are particular pessimistic about the economy. He suggested that New Zealand consumer confidence was currently very fragile, and could become even more pessimistic if the concerns of rural consumers spread to cities.

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The Companies Office of New Zealand has released its latest internal statistics, showing the number of new business entities registered in the country during the 12 months ending June 30th 2011.

According to the Companies Office, the Register of New Zealand currently lists 563 856 New Zealand companies, and during the 12 months between July 1st 2011 and June 30th 2011 43 927 new companies were incorporated. In the same time 52 960 company names were reserved, and 451 663 annual returns were filed.

The latest available statistics show a decrease in the number of new companies being registered, with 8.2 percent less incorporations being completed, compared the number seen during the 12 months ending June 30th 2010. Statistics provided by the Companies Office show that the number of new companies has been on a steady decline since the 2006 – 2007 period, when 72 247 new companies were incorporated.

The Companies Office’s push towards online facilities has also proven to be successful, with only 8 companies being registered with a paper application during the year, and nearly 99.8 percent of all annual returns being submitted online.

As at June 30th 2011 the Register also has 1008 listed Limited Partnerships, 1 643 overseas companies, 20 326 charitable trusts, 23 147 incorporated societies, 12 building societies, 29 credit unions, 156 friendly societies, 1 428 overseas issuers, 334 retirement villages, 369 superannuation schemes, 440 unit trusts, and 451 participatory securities.

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On December 15th Statistics New Zealand released the latest Institutional Sector Accounts report, showing that New Zealand households have begun saving money for the first time in over a decade.

The newly released statistics indicate that in the year up to March 2011, New Zealand households saved NZD 200 million more than they spent. The savings are equivalent to approximately 0.2 percent of net disposable household income in New Zealand. In comparison, in the year up to March 2010, New Zealand households spent approximately NZD 1.6 billion more than they earned.

New Zealand has not seen overall savings since the year up to March 2000. Over the last ten years, the difference between spending and incomes peaked in 2006, with households spending approximately NZD 6.85 billion more than recorded incomes. The difference in earnings and net spending was fueled by borrowing and extra debt.

Mark Smith, the Senior Economist at ANZ Bank, commented on the latest savings result, saying that recent financial turmoils have scared New Zealanders into paying off the debts they incurred over the last 10 years. Shamubeel Eaqub, principal economist at the New Zealand Institute of Economic Research suggested that New Zealanders were becoming better savers, but he added that net savings of NZD 200 million was still a small amount, and New Zealanders needed to keep increasing the amount of money they save each year.

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