Core Views
We believe the damages caused by the second Christchurch earthquake, ongoing property correction and debt deleveraging will weigh on growth, with real GDP forecast to rise by only 0.7% in 2011, decelerating from the 1.5% estimate for 2010. The incumbent coalition led by the New Zealand National Party should win the upcoming general elections in November. Effective post-disaster management will be a key factor to retaining popular support.
Monetary policy will be kept loose to facilitate the rebuilding effort, with the benchmark official cash rate maintained at 2.50% until the end of 2011. The benchmark rate was reduced from 3.00% by the Reserve Bank of New Zealand in March.
The fiscal gap may widen to 6.3% of GDP in FY 2010/11 (July-June) and is not expected to close until FY 2015/16, as the expansionary measures adopted by Wellington following the earthquakes will necessitate more borrowing, amid lower tax collections over the medium term due to the disasters.
Major Forecast Change:
We downgraded our 2011 economic growth forecast to 0.7% (from 1.8%) in March on the back of the destruction caused by the second Christchurch earthquake in late February. The Reserve Bank of New Zealand unexpectedly slashed the official cash rate by 50 basis points to 2.50% on March 10, prompting us to reassess our year-end monetary policy target. In view of the ongoing property slump and weak money supply growth, we have changed our end-2011 benchmark rate forecast to 2.50%, from 3.00% initially.
Key Risks To Outlook:
Uncertain impact of the Christchurch earthquakes and subsequent rebuilding efforts place risks on our economic growth forecasts. Significant uncertainty remains, with possible future downgrades should the damage turn out to be worse. Conversely, a faster-thanexpected pace in post-disaster reconstruction may lead to an early recovery, enabling faster growth this year.
Frontloading of interest rate hikes. A further increase in global food and commodity prices may lead to a quicker return to inflation. A second cause to an acceleration in price pressures may be due to an faster reconstruction process, forcing the central bank to raise the official cash rate as early as Q311.

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Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
National Victory In November, Disaster Management Remains Key
In terms of post-crisis disaster management, the New Zealand National Party performed reasonably well
following the aftermaths of the first and second Christchurch earthquakes, as well as the Pike River mining tragedy
TABLE: POLITICAL OVERVIEW 8
Long-Term Political Outlook 9
Stability To Prevail, But Not Without Challenges
New Zealand is likely to remain one of the most stable states in the world over the coming decade
Chapter 2: Economic Outlook 11
SWOT Analysis 11
BMI Economic Risk Ratings 11
Economic Activity I 12
Growth Outlook Shaken By Quakes
We believe ongoing debt deleveraging and property price correction will continue to place downward pressure
on headline expansion in 2011, dampening private consumption growth and contributing to a contraction in
investment activity
TABLE: ECONOMIC ACTIVITY 12
Monetary Policy 14
Rates To Be Kept Low
The Reserve Bank of New Zealand decided to slash rates by 50 basis points in March to 250% in order to
assist in the rebuilding of Christchurch following the devastating earthquake in late February
TABLE: MONETARY POLICY 14
Fiscal Policy 16
Budget Shortfall To Remain Until FY2015/16
In view of existing fundamental weakness as well as the Christchurch earthquakes, we expect government s
pending to remain elevated, keeping New Zealand’s fiscal balance in deficit until at least FY 2015/16 (July-June)
TABLE: FISCAL POLICY 16
Economic Activity II 17
Second Blow To Christchurch Risks Recession
The second Christchurch earthquake on February 22 resulted in damages in excess of NZD15bn (US $110bn)
Chapter 3: 10-Year Forecast 19
The New Zealand Economy To 2020 19
Deleveraging Will Put A Cap On Growth
The main factors that contributed to New Zealand’s solid real GDP growth out-turn over the past decade will
not be in play to the same degree over the next 10 years
TABLE: NE W ZEA LAN D Long-Term Macroeconomic Forecasts 19
Chapter 4: Business Environment 21
SWOT Analysis 21
BMI Business Environment Risk Ratings 21
Investment Climate 22
Broadband Upgrade Gathers Pace
The New Zealand government has approved the introduction of high-speed broadband services to the country’s
rural region, with 3G technology serving as a cost-effective means of delivering connectivity, in our opinion
Business Environment Outlook 23
Institutions 23
TABLE: BMI Business And Operation Risk Ratings 23
TABLE: BMI Legal Framework Rating 24
TABLE: Labour Force Quality 25
Market Orientation 26
TABLE: ASIA , ANNUA L FDI IN FLOWS 26
TABLE: Trade And Investment Ratings 27
Operational Risk 28
TABLE: TOP EXPORT DESTINATIONS 28
Chapter 5: Key Sectors 29
Tourism 29
TABLE: Arrivals Data, 2007-2015 29
TABLE: Hotels Data, 2007-2015 (‘000, unless otherwise stated) 30
TABLE: Ex penditure Data, 2007-2015 30
TABLE: Tourist Arrivals, 2007-2015 30
TABLE: Outbound Tourism Data, 2007-2015 31
Chapter 6: BMI Global Assumptions 33
Global Outlook 33
Oil Risks
TABLE: Global Assumptions 33
TABLE: GLOBAL & RE GIONA L REA L GDP GRO WTH % CHG Y-O-Y 34
TABLE: CONSENSUS FORECASTS 34
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