New Zealand's Economy Conditions

New Zealand’s Economy Conditions

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New Zealand's Economy Conditions

New Zealand has a relatively small economy with GDP (Gross Domestic Product) of about $103 billion (in 2006) and its population is also small in size.

In the past, its economy was highly regulated. However, this government policy has been changed to a more open and market-oriented one. As a result New Zealand’s economy is characterized by stability and great modernization.

The movement toward knowledge-based economy has been done through the Fiscal Responsibility Act, which was implemented in 1994. Before it, the economy was agricultural farming oriented.

However, after the passing of the act, the country bases its economy mainly on highly skilled and highly employed work force, which tends to produce value added production. Public accountability of the government regarding its fiscal policy is established in the act.

Additionally, the macroeconomic principles are included in the act, which the government is required to abide.

The manufacturing and service industries of the country are very well-developed. However, a big portion of the exports of New Zealand is contributed by the agricultural industry.

The export of goods and services is the primary contributor to the nation’s GDP, which makes the country strongly trade-oriented.

The sensitivity of New Zealand to global economic performance is stressed not only by its relatively small economy, but also by its close trade relationships with its trade partners, the primary of which are coming from Australia and Japan.

New Zealand’s Economic Indicators Important to Forex Participants

There are several economic indicators to which forex participants should pay special attention. They are as follows:

Gross Domestic Product (GDP) Economic Indicator

This indicator provides a measurement of the total production and consumption that occurs within the borders of New Zealand. It is calculated by adding expenditures incurred by:

  • households
  • businesses
  • government
  • net foreign purchases

In order to convert the output that is in current prices into constant-dollar GDP, the GDP price deflator is used. The position of New Zealand’s economy in the business cycle is determined by this information. If the economy is experiencing rapid growth rates, then it is considered as a sign for potential inflation.

Consumer Price Index (CPI)

The CPI is constructed on the basis of a basket of consumer goods and services, which are representative of a high percentage of the expenditures of the CPI population group.

The basket includes the prices of such items as food, education, housing, health, etc.

The CPI represents a gauge of inflation, and thus the monetary policy of the New Zealand’s central is based on it.

Producer Price Index (PPI)

The selling prices that New Zealand’s producers receive for their production is measured by a family of indexes, referred to as PPI.

The latter includes a record of the changes in the prices of a wide range of goods and services such as electricity and natural gas, agriculture, fisheries and etc.

For forex participants it is important to examine the seasonally adjusted finished goods PPI and its movement over different time periods. Forex players can find updated information on this indicator every quarter.

Balance of Goods and Services

In order for forex participants to acquire information on the value of the transactions of goods, services, income and transfers that New Zealand has completed with the rest of the world, they should refer to its Balance of Payments statement. It also shows any changes in the financial claims that the country has experienced toward the rest of the world.

Information on New Zealand’s international financial assets and international financial liabilities is presented in the country’s International Investment Position statement.

Private Consumption

This indicator describes the current expenditures of households and the producers of private non-profit services that are provided to households, and includes expenditures on both durable and non-durable goods.

Expenditures on the purchase of dwellings and of a capital nature incurred by unincorporated enterprises are not included in the private consumption indicator.

Forex traders should examine this indicator because it provides an indication of the flexibility of New Zealand’s economy and its ability to deal with different market conditions.

Population Migration

Since New Zealand’s population is of a relatively small size, any changes in the migration levels can have an effect on the economic performance of the country

When migration levels of the country increase, the economy is positively influenced. The major reason for this is that more household goods and services are demanded. This in turn leads to higher consumer consumption levels.

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