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Europe Down, NZ Housing Up
Thursday July 12th 2012
This week we have seen worries about Europe grow again and that has meant falls in NZ wholesale borrowing costs and some mild weakness in the NZD – except against the increasingly beleaguered Euro. On the data front our BNZ Confidence Survey recorded a small rise in sentiment, our BNZ-REINZ Residential Market Survey found a decline in people potentially wanting to sell their property and further increases in buyer interest, while the NZIER’s quarterly survey showed quite a decline in inflationary pressures.
This past week has been one of a small wave of relief washing around global financial markets following some positive movement at the European leaders’ summit toward a European-wide banking regulator. But apart from allowing the bailout fund to recapitalise banks directly rather than through governments, and announcing a small stimulus package, the meeting did nothing to change the risk of Greece leaving the Euro. Thus in coming weeks we could easily see worries about a Euro break-up return.
This week we have not learnt anything truly startling regarding the state of the NZ economy, and offshore the markets are on hold ahead of tonight’s European leaders summit. So if you are pressed for time stop reading and get on with life. If you are in Europe, good luck. You’re going to need it. If you want more detail however then we can note that NZ export receipts have fallen by 7.3% seasonally adjusted over the past three months, while the NBNZ monthly business survey has replicated our own of three weeks ago showing a sharp decline in optimism about the economy.
This week fresh data on the state of the NZ economy was almost completely absent apart from this morning’s GDP numbers. They show that the economy grew by 1.1% in the March quarter and 1.7% in the year to March. However, all is not as it seems. During the quarter household spending rose 0.1% and exports fell 1.7% while house building declined 0.5% and imports soared 4.1%. What delivered the 1.1% result then? A massive rise in inventories.
This week we have received generally better than expected data for New Zealand suggesting that retail spending has actually been quite strong since the middle of last year. That gels not at all with the experience of just about every retailer encountered over that period of time suggesting that the spending strength may simply reflect large discounting by retailers causing consumers to bring forward in time some spending they were planning later this year.
One week I shall be writing here that things are looking better around the world and growth prospects are improving for our economy. But this is not that week and I don’t anticipate sounding overly optimistic for a number of months. This week we have seen a general movement in the world’s economic discussion toward gauging the extent of the negative impact which Europe’s worsening economic crisis is having on global growth. The news is bad. In India the economic growth rate has slipped to a far lower than expected 5.3%. In China the manufacturing index for May came in also much weaker than expected removing all hope that growth might slow only marginally this quarter. In Australia the Federal Treasury has admitted that it has been working on a contingency plan for handling a new crisis since before Christmas and the RBA has again had to cut interest rates. In the US jobs growth has all but stalled and the unemployment rate is rising again. (more…)
Fresh data have been thin on the ground this week and the only really new developments are in Europe where the fresh news is still bad. Spain’s central bank Governor has thrown in the towel and confidence throughout Europe is falling. In the US housing data have been on the weak side as was Australia’s retail trade number for April.
This plus the Chinese stating reasonably clearly that they are not planning a big stimulus programme all adds up to a worsening global environment which will depress our commodity prices and the NZD – all at the same time as our housing market gathers more and more steam due to a shortage of stock meeting a catch-up period of buying and with interest rates at four decade lows. This does not sound like a sustainable mix. Watch for a blow-out in the current account deficit down the track.
I bet you think this week’s Overview will be all about the Budget. It isn’t. The newspapers give great coverage so there is no point in merely repeating what you will have already read by the time you deign to open this publication. Instead, while noting that the Budget came out and its highlights, this week I reckon the most interesting thing in the WO is the article in the Housing Market section.
Data regarding the state of the NZ economy have been thin on the ground this week. No matter because the big events driving financial markets have been offshore. Weak US jobs data and the European election results and ensuing confusion have caused a wave of risk aversion to sweep across the markets. This has pushed the NZ dollar down along with wholesale interest rates.
The European uncertainty is going to be around for a long, long time. But at least in Australia recent data on retailing and employment growth have been better than expected and this will help support NZ growth at a time when falling commodity prices mean farmer willingness to spend will be possibly declining rather than rising.
Over the past week we have seen some decidedly mixed developments around the planet. On the positive side manufacturing numbers turned out reasonably strong in China and the US. But on the negative side the situation here in Europe continues to get worse, and across the ditch the RBA are so worried they have just cut interest rates 0.5%.
Locally NZ data releases have been decidedly mixed. Export receipts have fallen 6% seasonally adjusted recently, export prices fell 4.5% on average in April, but business sentiment is good with above average employment and investment intentions, credit growth is picking up, residential and non-residential construction consents are showing life (especially the former), but jobs growth is only mild as seen in this morning’s Household Labour Force Survey numbers.