The full pdf version of the Weekly Overview is contained here.
Kiwi Dollar Above US83 cents
Thursday February 2nd 2012
Fresh data have again been thin on the ground with respect to the state of the NZ economy this week. We have in hand information showing debt growth remains practically zero, a fall in job numbers occurred late last year, there is little apparent underlying growth for the moment in building consents, but some good growth is happening in export receipts. The Kiwi dollar over the week has risen above US83 cents as investors around the planet have become a tad less nervous about Europe. Yet at the same time wholesale swap rates have fallen to new lows because of a recent string of weaker than expected data in the United States.
We have not learnt much new about the NZ economy this week apart from a small rise in consumer sentiment, fall in job advertising, cut in Treasury’s fiscal projections, and completely expected retention of the 2.5% official cash rate at this morning’s review by the Reserve Bank. The Kiwi dollar has however risen firmly against most currencies including the greenback against which it now sits just below 82 cents.
Over the year the chances are that NZ growth will be disappointing in light of the continuing risk of implosion in Europe, oil price shock from building tensions involving Iran, delaying of Christchurch rebuilding because of continuing earthquakes, and absence of a generalised consumer spending surge due to reduced labour market strength and worries offshore.
Nevertheless, with still firm export prices though with declines more likely than rises, good long term prospects supplying food and fibre, and portfolio divestment away from Europe, the Kiwi dollar is likely to have a firm tone all year.
I hope everyone has had or is still having a good break. I am currently in Guangzhou checking out the scene here and in Hong Kong for New Zealand companies and will this year, as indicated in the last few Overviews for 2011, be writing about the opportunities presented by China’s two century overdue return to producing over 25% of world GDP. This week the Overview commences with a discussion on that issue but we also look at the economic data for NZ which have appeared over the past five weeks. What they tell us is essentially the message being put across here for almost all the second half of 2011. Our economy is weak and interest rate pressures minimal.
Merry Christmas everyone and Happy New Year. It would be great to be able to say that the year ends well for ourselves and the world economy and that we can look forward to good economic conditions over 2012 with our growth driven by higher business investment and exports, unemployment falling away, and commodity prices holding firm. But some recent data releases in New Zealand have been weak – retailing, manufacturing and construction. And more importantly, the situation in Europe is getting worse and spreading around the globe.
This week we have included extensive coverage of the NZ real estate market using data and feedback from our two monthly surveys along with discussion of the monthly Barfoot and Thompson data for Auckland and The Economist magazine analysis suggesting NZ house prices are over-valued 25%. We look also at some fairly weak manufacturing data released this morning (non-meat and dairy processing down 1.1%), the reasonably well entrenched downward trend in spending on cars revealed in monthly registrations data, and a 2.3% fall in construction during the September quarter.
This week the Kiwi dollar has jumped over three US cents on the back of moves by central banks to shore up US dollar funding for European banks. But the deterioration in Europe’s fundamentals continues with growing debate about potential break-up of the Euro. The next few weeks promise to be very volatile.
Domestically we have seen further evidence of good growth in imports of capital equipment into New Zealand but flat investment in commercial property while an underlying positive trend continues in consent numbers for dwellings. Next week the Reserve Bank will review the official cash rate and we expect no change even though they are likely to downgrade their forecasts for growth in the coming year. The general election results have had no impact in the markets.
We have not learnt anything meaningfully new about the NZ economy this week and the story remains one of some upward bias to consumer spending data this year because of the Rugby World Cup and substantial distortion in data because of other factors such as earthquakes. Looking ahead prospects for NZ growth look good on the back of a coming period of strong residential building, the feed-through of spending by farmers, generalised catch-up spending by consumers on items other than TVs (already purchased for watching the rugby), and setting up of companies deserting Australia as labour costs take off.
This week started off with the world looking like a slightly less worrying place with the successful appointment of new leaders in Greece and Italy with strong mandates to implement deficit-busting and eventually productivity promoting economic reforms. But as we know in NZ the short term impact of such changes is invariably negative and the markets perhaps have started to factor that in because as the week has advanced worries have once again grown. (more…)
My main message over the past few months has been that growth in the NZ economy has as good as stalled and that the offshore situation risks getting a lot lot worse bringing extra weakness for us next year and offsetting some of our big positives expected to kick in “At Some Stage”. Nothing that has happened this week dissuades me from this view. To whit..