The risk of the kiwi dollar remaining higher than expected over the next four years is the biggest risk to Government forecasts for growth in the nation's farm, forestry and seafood exports, a new Government report says.
The trade-weighted index is forecast to fall 8.4 per cent to 64.7 by March 2016, with weakness against the Australian dollar and yen offsetting gains versus the greenback, pound and euro, according to the Ministry for Primary Industries 2012 situation and outlook report. The TWI was recently at 70.43.
If the decline does not eventuate, revenue from dairy, meat, wool and forestry could be 20 per cent below the ministry's baseline assumptions, the report says.
"In the shorter term, weak European and US economic performance, and lower interest rates relative to New Zealand drive the assumed strength of the New Zealand dollar," the report says.
"Longer term, New Zealand's high and growing level of international indebtedness is expected to be constrained by limits to lenders' appetite for risk, eventually reducing the strength of the New Zealand dollar."