Tony Alexander

Economic Commentaries

Weekly Overview January 28 2016

Thursday January 28th 2016

The Reserve Bank left the cash rate at 2.5% this morning which surprised no-one. But they did open the door a bit more to cutting further, so although our view remains that they won’t move again, one cannot rule out a 0.25% reduction in March. A lot depends on what happens overseas as domestically our economy has a lot of strength.

China remains concerning and weakness there is one reason for still easing international dairy prices and reduced confidence that they will rebound. That loss of confidence lies behind Fonterra’s decision to cut their projected payout from $4.60 to $4.15 which will mean about $800mn less to their suppliers.

This week in the housing section I take a quick look again at reasons why Auckland house prices are high and why they will stay high, plus illustrate why cutting migration inflows is not a realistic option for curtailing Auckland’s population growth which is running at twice the average for the rest of NZ.

I finish with a look at China, specifically the change in expectations of the rural-urban drift from 5-15 million a year to in fact going into reverse! It looks like analysts on the ground forgot to allow for many “rural” people not in fact still being on farms but having already relocated to “county towns”. The overhang of apartments built in the big cities therefore is a lot more entrenched than previously thought. Hence new worries about debt of developers, regional governments, banks etc. as well as personal wealth held in many (not all) city locations.