31/01/2014 NZD This afternoon, I have outlined the factors behind New Zealand’s strong economic growth, and the challenges facing the Reserve Bank in helping to ensure that the expansion can be sustained. We have supported the recovery through low policy rates. We recognise that the economy has been growing faster than potential growth for some time. Although headline inflation has been moderate, inflationary pressures are building and are expected to increase over the next two years. In such an environment, there is a need to return interest rates to more–normal levels and the Bank expects to begin this adjustment soon. Achieving this will help to ensure economic activity is kept more in line with the potential growth of the economy, thereby promoting a more sustainable expansion. [1] Natural disasters in developing countries have in several cases been more deadly and had a larger cost relative to GDP than disasters in the advanced economies, even if insured losses have been low. For example, the 2010 earthquake in Haiti is estimated to have a death toll of over 220,000 and an economic cost of over 100 percent of Haiti’s GDP. [2] Potential output is the rate of growth that the economy can sustain at full employment without generating inflationary pressures. [3] The real effective exchange rate provides a more accurate picture of competitiveness than the nominal effective exchange rate as it corrects for differences in relative inflation rates (or relative unit labour cost movements) between New Zealand and its major trading partners.
Posted on: Fri, 31 Jan 2014 06:36:30 +0000
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