Dairy prices recovered halfway through the year as production in Europe and North America slowed down. Photo / Cloomberg
New Zealand's economy batted away some curly political curveballs of 2016 to end the year on a high note, with its twin planks of a booming construction sector and rampant tourism soon to be joined by a resurgent dairy industry.
Government data this week showed the economy humming along, with September gross domestic product up 3.5 per cent from a year earlier. Construction is the centrepiece with a $37 billion pipeline of work estimated for the next six years, largely to meet Auckland's housing shortfall. At the same time, record migration has contributed to higher household spending, combined with throngs of tourists - both locals and foreigners - travelling the country and opening their wallets.
That's helped out local retailers in an environment where consumers are increasingly looking online for cheaper deals, and several high-profile chains have fallen over this year including Dick Smith Electronics, Pumpkin Patch and Wild Pair. It's also got the government thinking hard about how to get its share of the tax take from online purchases, although it's only managed to make it to online services with what's been dubbed the Netflix tax.
"We're in a pretty good spot, and if you think more broadly, the government books are looking pretty decent, so if you're looking from the outside, New Zealand's not a bad place to be in the end, hence we have got interest from offshore in investing and people wanting to come here," said Nathan Penny, rural economist at ASB Bank. "That growth is still feeding on itself continuing well into next year if not into 2018."
That's a far cry from the start of the year when a slump in global dairy prices had people on high alert over whether a slowdown in the rural economy would seep into the urban centres and potentially put the squeeze on the nation's lenders.
Instead, dairy prices recovered halfway through the year as production in Europe and North America slowed down and ASB is now picking Fonterra Cooperative Group will pay farmers $6.50 per kilogram of milk solids for the current season, past the nominal breakeven point and up from $3.50/kgMS in the 2016 season.
"It's certainly been a year of two halves - it was pretty tough conditions over the first half and now we're seeing a lift at last," Penny said. "Farms are looking at a season where they will make some money."
Surprises came thick and fast on the political front, including the unexpected British vote in favour of quitting the European Union, a rising tide of populism that Republican candidate Donald Trump rode on to secure the White House, and capped off with the exit of New Zealand's dominant Prime Minister, John Key.
"This year's been the year for upsets on that front," Penny said.
While the Brexit vote initially sent shockwaves through financial markets, including an 11 per cent slump in the British pound to a 30-year low on the day, the reaction to Trump's victory stoked expectations the US Federal Reserve will finally start hiking interest rates more aggressively, boosting global demand for the greenback and taking some of the pressure off New Zealand's Reserve Bank, where governor Graeme Wheeler has struggled to offset the deflationary impact of a strong kiwi dollar.
Wheeler has long complained about the strength of the kiwi, over which he has limited control, and had to cut the official cash rate to a new record low of 1.75 per cent as inflation remained below his target range of 1-to-3 per cent for two years.
New Zealand's rampant property market, centred in Auckland but becoming increasingly widespread, restrained Wheeler's ability to cut too aggressively for fear of stoking an already inflamed market. Instead, he imposed new lending restrictions on highly leveraged investors to remove them from the market, and has been trying to convince the government to add a debt-to-income restriction to his toolkit.
Housing hasn't just been a headache for the Reserve Bank, with the government facing affordability issues of its own. Finance Minister Bill English, who has since taken over the premiership, struggled to make headway with plans to sell state housing stock to non-government departments and private investors, while Environment Minister Nick Smith has continued to face roadblocks in achieving meaningful reform of the Resource Management Act.
Some things have gone their way, such as the passing of Auckland's unitary plan, and the council reached an accord with central government over paying for its inner-city rail link, and the Crown's books are in good shape as the swelling population delivers a bigger tax take, even if immigration settings have made some parts of the electorate uncomfortable.
However, politicians have found themselves besieged on several fronts. Tax avoidance by multinationals became a major issue when New Zealand's foreign trust regime was embroiled in the Panama Papers scandal, though before his exit Key said he was growing increasingly uncomfortable with the rising tide of protectionism, which appears to have scuppered the divisive Trans-Pacific Partnership trade and investment deal which was signed in Auckland this year.
New Zealand also managed to get caught up in a global backlash against Chinese steel imports, which saw Fonterra leaned on in an unofficial manner to make it known the introduction of dumping duties wouldn't be welcome. The quality of some imported Chinese steel raised hackles among regulators after several batches used in the Waikato expressway were found to have missed the required standard, and a handful of local manufacturers now face sanctions ranging from prosecution to a wet bus ticket.
Foreign investment continued to be a bugbear for everyone, with overseas buyers grumbling about the length of time it took to get deals over the line and locals complaining about the loss of sovereignty when offshore interests take over New Zealand assets. The Silver Fern Farms deal, where it poured half of its processing assets into a new entity co-owned with Shanghai Maling Aquarius captured all of those tensions and managed to whet Winston Peters' appetite to bang the anti-foreign investment drum in Parliament.
On the corporate front, 2016 was less about initial public offerings and more about mergers and acquisitions. That saw long-time NZX resident Nuplex Industries and one-time stock exchange darling Diligent Corp depart the bourse, Abano Healthcare's favourite shareholders Peter and Anya Hutson and James Reeves are having another go at seizing control of the firm, while Hellaby Holdings looks increasingly likely to be folded into the Bapcor family.
Z Energy got the all-clear by the Commerce Commission to proceed with its purchase of Chevron's New Zealand network of Caltex stations, however the proposed media mergers of Sky Network Television and Vodafone New Zealand, and publishers NZME and Fairfax New Zealand don't seem to have passed the commission's smell test, and their respective legal teams will have to work overtime to convince the regulator the deals pass muster and will be good for the country.
The usual corporate spats broke out, with Briscoe Group and Kathmandu Holdings set to go to court over who should foot the bill for certain costs when the homeware and sporting goods chain mounted a takeover for Kathmandu, while Spark and its former subsidiary Chorus launched a war of words about the adequacy of copper-based broadband.
The year saw the cloud of suppression lifted on Ngatata Love, with the former Treaty negotiator jailed for defrauding the Wellington Tenths Trust, an entity he chaired, taking backhanders for doling out property contracts. In other high-profile cases, former Milford Asset Management high-flier Mark Warminger stood trial accused of manipulating stock prices, though the learned judge has yet to make up his mind.
Former Hanover principal Mark Hotchin couldn't keep out of the courts this year, and has won the right to argue Guardian Trust should have reined him when he was in charge of the finance company, putting the trustee on the hook for his settlement with the Financial Markets Authority.
More recently, Christchurch property developer David Henderson, not to be confused with the Auckland developer with the same name, will have his bankruptcy lifted after a public examination, though he faces strict conditions to curtail the 61-year-old's business activities for another six years.
While 2016 was the year where the rising tide of homelessness and poverty attracted the public's attention, it was also a year where the mega-rich continued to get richer. That didn't extend to media-shy billionaire Graeme Hart, who again topped the National Business Review's rich list, saw his wealth shrank for the first time since 2012, to an estimated $7b. Hart whittled down his Reynolds packaging empire to repay debt used to fund the global expansion, while his UCI autoparts business was a rare misstep, filing for bankruptcy protection to restructure the business.