Structural worries offshore, low inflation at home.
Friday October 19th 2012
This past week I have been on the road giving talks to audiences in Dublin, Paris, London and tomorrow Hamburg so I’ve not had much time for placing content in this week’s Overview. I’ve not carved off separate sections into pdfs this week either. In the introductory section I give an opinion about many problems persisting overseas but it should be noted for that for the moment US data have been good and progress is being made on European debt issues – hence the strength in sharemarkets and in the NZ dollar in spite of the much lower than expected NZ inflation number.
I make some more observations regarding London in the front section and the third url link below. Many thanks to those who responded in my monthly confidence survey. It shows sentiment is slowly improving out there which leaves one happy with a forecast of growth slowly picking up in the NZ economy and the labour market eventually tightening and producing some pretty severe skills shortages.
This week the main piece of news has been the cut of 0.25% in interest rates across the ditch which has pushed the NZD to a 13 month high against the Aussie dollar. It is very unlikely that their rate cut will be followed by one in NZ and in this week’s WO I explain yet again why that is the case – a rising housing market. We have received more data this week showing tightness in housing supply in New Zealand and in particular in Auckland.
I’m offshore at the moment so this week’s Overview is shorter than usual. Suffice to say though that I see nothing which alters my view on our economy. The construction sector is picking up due to the rebuilding of Christchurch and catch-up construction in Auckland. The trade balance is deteriorating due to this construction and reasonable retail spending growth boosting imports while exports are constrained by the high NZD. This situation will eventually lead to a probable additional credit rating cut within five years.
This morning the Reserve Bank surprised no-one by leaving their cash rate unchanged at 2.5%. And regular readers of the Weekly Overview should also not have been surprised at them shifting out the projected date for raising the cash rate from mid-2013 to the end of the year. The next change will be into 2014.