The relatively small and isolated New Zealand economy is largely dependent on the rest of the world. Global trade conditions have become increasingly uncertain over recent months, with tariffs between the United States and China and Britain's divorce from the EU both having a negative impact on global sentiment. While favourable production conditions and strong commodity prices are great news for New Zealand farmers, the local economy continues to face a number of challenges.
According to Rabobank NZ chief executive Todd Charteris in an interview with the Herald, the domestic agricultural sector starts the year in a good position. Strong production conditions and commodity prices will continue to have a positive effect on New Zealand farmers throughout 2019, especially if we see an anticipated weakening of the kiwi dollar: "Commodities markets are really, really positive, which is fantastic... But there are these uncertainties on the horizon... Farmers have been dealing with a lot of these aspects for quite some time now, and our role is to help support them through that."
The 2019 economic landscape will be challenging to navigate, with protectionism gaining ground overseas, the Chinese and global economies faltering, and the local agricultural sector facing a number of hurdles. According to Prime Minister Jacinda Ardern, while the New Zealand economy remains "relatively strong", it is certainly not immune to global conditions: "We have strong fundamentals and are well prepared, but we need to be realistic that if the global economy slows, it will affect our economic growth."
Like many others, Prime Minister Ardern is concerned about rising economic protectionism in key global markets. "The finger of blame for the slowdown in global trade growth is generally pointed at countries pursuing increasingly protectionist policies, which are naturally affecting confidence and investment plans." she said, before specifically mentioning that "trade tensions in the wake of tariffs imposed by the US on Chinese imports dented the strong growth seen in 2017." The ongoing trade war could escalate even further, with President Trump set to increase existing tariffs on Chinese goods from 10 percent to 25 percent.
Along with the situation in China, New Zealand will also have to navigate new trade relationships with Britain and the European Union once the UK exits the trade bloc. Growth forecasts are also down around the world, with the Bank of England and the European Union both downgrading their growth forecasts for 2019, the US economy set to grow by just 2 percent, and the Chinese economy slowing as it makes the difficult transition from an export-driven economy to one based on domestic products and services.
Global trade is predicted to decline by 3 percent this year according to the International Monetary Fund (IMF), after growing by 4 percent last year and 7 percent in 2007. The IMF expects advanced economies, including New Zealand and its major trading partners, to shrink by 2 percent this year. In anticipation of a global slowdown, the New Zealand Reserve Bank just dropped the official cash rate from 5 percent to 3.5 percent, which is an all-time low. The trade balance remains in the red by $5.6 billion compared to 2008 figures, with further rate cuts dependent on how much worse the world economy gets.
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