This morning we learnt that during the December quarter the NZ economy grew by only 0.3% and not the 0.6% which the markets had been expecting. Growth for the whole year was only 1.4%. This mediocre result is in line with the downbeat interpretation I have been taking of NZ’s economic performance – especially when one considers that growth was boosted last year by the Rugby World Cup and the terms of trade being near a four decade high.
This week we analyse the most up to date data and conclude that as yet one would be unwise to lay money down saying that growth is accelerating. However there are signs which suggest things will be improving soon – especially in housing. That is why exporters might want to treat the fall in the NZD this week as a chance to pick up some light extra hedging. Borrowers might want to also continue thinking about whether the time is right to move some debt from a floating to a fixed interest rate given the sharp decline in bank fixed rate margins over recent weeks as wholesale funding costs have gone up.Download document