FYI | Feb 05 2008
By Chris Shaw
While Australia has suffered from a drought for several years there are signs emerging of similar conditions across the ditch, with TD Securities senior strategist Joshua Williamson suggesting there is scope for any drought in New Zealand to impact on economic growth.
January rainfalls in many areas of the country were the lowest or second lowest on record, while temperatures have been warmer than usual and soil moisture levels are falling.
This is impacting most on the dairy and sheep sectors, as a lack of feedstock is causing sheep farmers to sell stock early and dairy farmers are recording lower production as farmers are forced to dry off stock.
While the rural sector makes up only around 6% of GDP Williamson points out the impact of any downturn is likely to be more broadly felt, as for example the dairy industry has downstream impact on a number of sectors from transport to medical research.
This means as much as 10% of total economic output could be impacted, which has growth implications as the recent rebalancing in the economy away from domestic consumption requires stronger net exports to maintain GDP and the dairy sector has driven the recent increase in total exports.
Consumption growth itself may also come down as the wealth impact farmers have enjoyed in recent years may be reversed, so Williamson expects economic growth in New Zealand will slow this year.
His forecasts calls for GDP growth or around 2%, but with risk to the downside and a corresponding increased risk of a reversal in monetary policy in or around the third quarter of the year if the drought does impact on growth.
