Tony Alexander

Economic Commentaries

Weekly Overview – Feb. 20

Thursday February 20th 2014

Wholesale interest rates and the NZD have not moved by much over the past week. The NZD remains as well supported as ever by accelerating NZ growth and expectations of interest rates rising from March 13.

On the local data front we have learnt that core retail spending only rose by 0.7% during the December quarter with durables spending growth of 1.1% just half the average in recent times. Thus one cannot run an argument that Kiwi consumers are opening up their wallets and spending up large. Our BNZ-REINZ Residential Market Survey released on Monday shows conditions improving in the market with heightened expectations for price rises and things switching back to be a seller’s rather than a buyer’s market.

We have also learnt that residential construction costs nationwide on average rose by 4.5% last year. By comparison the Consumers Price Index rose by just 1.6%. There will be a lot more upward movement in building costs in the next three years one suspects and given that so much of the work to be done will happen regardless of the level of financing costs, rising interest rates probably won’t have quite the inflation-dampening effect which the Reserve Bank and exporters will be hoping for.

Overseas, expectations for where economies are headed have not altered much in the past week. For the emerging economies investors have calmed down for now but there remains a strong risk that as US tapering proceeds further quick capital outflows from some of those economies will ignite again. In the United States recent data have been a tad weaker than hoped for but for now this is being put down to bad weather. In Japan GDP growth late last year was less than half expectations and fresh questions are being asked about Abenomics. In Europe fourth quarter growth of 0.3% means shrinkage of “only” 0.4% for the Eurozone has been recorded for 2013. Attention there is turning increasingly to the deepening mayhem in the Ukraine, the fourth government in Italy in the past two years, and how the ECB might ease monetary policy again.