“The agriculture sector has been facing cost inflation at a similar rate to that of other businesses. Higher costs are being driven by imported fuel and fertilisers, due partly to the war in Ukraine. Ongoing labour market tightness is also constraining the agriculture sector’s output,” said the report, which warned rising household debt servicing costs and declining household wealth would limit consumption growth over the next year.
“The struggle to find workers has contributed to delays at meat processing sites and is curtailing horticulture output. The agriculture sector is also facing higher debt servicing costs as interest rates have risen....although stresses remain low for now.”
The report said regulatory change was an ongoing feature for the sector, with an increasing focus on climate and environmental regulation. The risk of a foot and mouth disease incursion had come into focus with an outbreak in Indonesia, though the probability of an incursion remained low to due effective border controls and lack of direct flights from Indonesia right now. An outbreak would have a large adverse impact on New Zealand agriculture as it would likely trigger a swift suspension of animal-based exports.
The central bank said it was working with other parts of government to monitor the Indonesian outbreak and risks to New Zealand.
The report said a slowdown in China’s growth would affect New Zealand its impacts on trade, financial markets and uncertainty.
Australia was directly exposed to a contraction in China’s property market as a major supplier of many of China’s raw material imports for construction.
A slowdown in the Australian economy would have “significant” flow on effects for New Zealand’s economy, for example through reduced demand for food exports and tourism, the report said.
“Additionally, emerging Asian economies with growth closely tied to China’s were also important export markets for New Zealand.”
While New Zealand exporters had a relatively limited direct exposure to China’s property development sector, a general slowdown in Chinese household consumption would likely affect meat and dairy exports.
A more direct link was through forestry exports with around 75 per cent of New Zealand’s logs exported to China.
“In the event of a greater slowdown in Chinese growth, export prices could decline, putting pressure on the New Zealand dollar exchange rate to depreciate, contributing to domestic inflationary pressure.”
The report said due to the scale of China’s real estate sector and the role China plays globally, uncertainty around Chinese growth prospects affected global risk sentiment, which shaped sentiment in New Zealand and was likely to affect investment and spending, along with other risks to global growth.
