Economic growth continues to be strong, boosted by post-earthquake rebuilding, recovery from a drought and enormous terms of trade gains. Economic slack is being taken up, but so far inflation pressures have remained muted, thanks to renewed currency strength and moderate wage increases. But with growth projected to stay robust, such pressures are beginning to become manifest.
If export prices remain favourable and global demand picks up as projected, the Reserve Bank will have to continue to increase its policy rate to prevent overheating. Fiscal consolidation should continue as planned, eliminating the budget deficit in 2014 and putting public debt on a firm downward path before longer-term ageing pressures take hold.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.