The full pdf version of the Weekly Overview is contained here.
Things Quiet Overseas For This Week
Thursday August 16th 2012
This week offshore apart from some better than expected data on retail sales in the United Stats fresh developments have been few and far between with many people on holiday. So exchange rates are little changed from where they were last week. Wholesale interest rates have however crept up a tad in response to the US data along with our own better than expected retailing numbers.
This week the Kiwi dollar has risen to near US 81 cents in response to hopes that strong words from the European Central Bank President regarding saving the Euro will be backed up by action. But given the increasingly bad economic data coming out of Europe some sort of break-up of the Euro looks probable so the wave of happiness which swept the world’s financial markets this week could easily prove temporary. On the domestic front no data have been released to alter our view of some strength to the NZ economy but little chance of very rapid growth with restraint from the high NZ dollar plus worsening world growth.
Tomorrow evening I shall be at the eastern end of the Heaphy Track so I’m sending this week’s Overview out a day early. Next week’s should be on Thursday all going well. If you are pressed for time then there probably is no need to open the pdf this week as it is only eight pages with the only interesting bit being the Europe section where as the media are well reporting conditions are spiralling downward – hence some weakness in the NZ dollar this week and declines in wholesale interest rates.
This week I start by taking a five page look at the way central banks and governments in most Western countries are now in the unfortunate position where traditional economic stabilisation via fiscal and monetary policies is no longer an option. This is bad news for global growth in the next few years in an environment where there is no solid sign that the deleveraging process initiated first by falling US house prices in 2006 and then the global financial crisis is easing.
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.