Rise of the new export economy: What will it mean for NZ exchange rates, inflation and interest rates?

The new century ushers in a NZ economy that is already looking a lot different from the old. Substantial broadening of the income generation base via the export services sector has diversified international exposures and spread risks through time. The business cycle will likely become less 'stop-go' and more 'go', which will aid corporate planning. But unless the same developments lead to enhanced national saving, an outcome could be generalised expenditure inflation, reflected either in measured inflation or more probably in a real exchange rate appreciation over the longer term. Government saving and transfer expenditure, the National Super fund, the baby boomers and other influences, will all influence the macroeconomic balance, both internal and external. The probable outcome is a stronger and more stable secular real exchange rate, and chronically higher short end interest rates relative to the rest of the world.