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The New Zealand economy is unlikely to be affected in the immediate aftermath of the Brexit; however, the nervous global environment is likely to see the New Zealand dollar fall further against the US dollar in the days ahead. In time, the uncertainty will also result in higher bank funding costs for New Zealand, Westpac reported.
Further, although NZ two-year swap rates are falling, mortgage rates and business lending rates are unlikely to fall as far (or may not fall at all). Financial market nervousness is likely to affect New Zealand business confidence surveys in the near future, although whether that actually translates to hiring and investment decision remains to be seen.
The Reserve Bank of New Zealand is expected to pour in a rate cut by August, following Britain’s withdrawal of its EU membership. However, from the exporters’ point of view, it remains difficult to assess the immediate impact. Market participants expect the UK to trade more freely with New Zealand. Existing trade agreements are expected to remain in place for some time while the UK and EU negotiate the exact nature of exit arrangements.
The UK takes around 3 percent of New Zealand’s merchandise exports (around USD1.7 billion). Key exports include sheep meat, wine and produce. The UK also accounts for around 9 percent of New Zealand’s service exports (around USD1.5 billion). This mainly relates to tourism, with around 90,000 visitors from the UK last year.
Meanwhile, it remains ambiguous to predict the trade relations between UK and NZ in the long term, after the shocks of Brexit wane out. In the near term, uncertainty is likely to weigh heavily on prospects for the UK economy, potentially dampening NZ exports.
"While New Zealand would have the opportunity to negotiate new goods trade agreements with the UK and EU, with a swing toward protectionism in recent times, it’s difficult to see New Zealand being afforded more favorable trade conditions in either jurisdiction," Westpac commented in its research note.
