Slowing growth

New Zealand’s 2005 GDP should be around 3.0 percent, according to Glenn Levine, associate economist at Economy.com. But, market watchers say the economy is clearly slowing, and the high short-term rates could actually put a strain on businesses. As of March 2005, year-over-year growth was 2.5 percent, down from 3.8 percent in the fourth quarter of 2004.

“[The Reserve Bank of New Zealand (RBNZ) is] playing a game of chicken,” Callow says. “They are holding monetary policy very tight, even though they admit the economy is slowing.

The market has been seeing things like business confidence falling and [many wonder] when [rates] are going to loosen up. There is substantial risk that the high interest rates hurt growth. It is a dangerous game.”

Inflation is not a concern in New Zealand; the CPI rose 2.1 percent year over year in the second quarter, near the mid-point of the RBNZ’s target range.

Analysts expect the RBNZ to begin slashing rates in the first quarter of 2006.