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Weekly Overview for July 21
Thursday July 21st 2011
The Kiwi dollar is rising and two months from now we expect the Reserve Bank’s official cash rate will be going in the same direction. That means time is now up for floating rate borrowers who have been biding their time before fixing.
The week has been very interesting with stronger than expected data for economic growth, sustained high business confidence, evidence of first home buyers entering the housing market, and strong growth in debit and credit card spending in June. It adds up to a strong currency and upward pressure coming for interest rates. July 14
Business Sentiment Strong – Now We Await The Action
Thursday July 7th 2011
This week we take a look at the longest running business confidence survey in New Zealand and see not just high confidence but strong employment and investment intentions. Now we wait for the data to show that businesses are in fact putting their money where their mouths are.
Monthly trade statistics let us see that some exports are rising strongly. But we can also look at import numbers and what we find there is a minor lift in capital goods imports but very weak buying of consumer goods – presumably as retailers remain cautious about consumer demand.
The Kiwi dollar this week has risen back close to US 82 cents as worries about Greece have eased slightly and the March quarter current account deficit numbers came in slightly better than expected. We’ve also seen some buying against the Aussie dollar after the Reserve Bank of Australia made less hawkish noises about further increases in their 4.75% cash rate in the near future. Apart from that the week has not produced much in the way of fresh news about the NZ economy except for worsening net migration numbers as people head off to Australia.
This week we have seen the Kiwi dollar fall back to just over US 80 cents in response to a bout of heeby geebies gripping the markets following new riots in Greece and the failure of the Greek Prime Minister to form a coalition government. If the Greek situation worsens the NZD will fall further along with global sharemarkets. If progress is made on the bailout then fundamentals like good commodity prices and an expected tightening of NZ monetary policy come December will see the NZD going back up again.
Wholesale interest rates have eased slightly this week in response mainly to Monday’s earthquakes in Christchurch, with little impact from good consumer confidence readings and stronger than expected retailing numbers for the March quarter.
At Farm Fieldays there is strong evidence of farmers boosting capex, but little as yet to suggest a wider move of that spending surge into generalised retailing. Attention on debt repayment remains very strong for now.
Our view on NZ growth remains firmly positive, but for now one still struggles to find data outside of booming merchandise export receipts to show strong growth. In particular short term construction prospects remain weak and businesses are cutting back investment except on commercial vehicles. Still, with our monthly survey showing confidence in the economy a year from now at a record high we feel on reasonably safe growth with our warnings regarding tightening labour availability, rising inflationary pressures, tightening monetary policy from late in the year, and eventually firmly improving housing market activity.
The main event of interest with regard to the NZ economy this week was a rise in the NZD above 50 pence and to a post-float record against the greenback in response to a variety of factors. There was initially last week’s news about $6bn of Chinese investment in NZ, then a very strong report on export growth in April, further commodity price gains reported in May, and soaring business confidence as we reported over three weeks ago in our monthly survey.
This week I’ve been meeting people in both Ireland and London and the picture one receives is of two economies still struggling – one with a weak housing market, high unemployment, high government debt, fiscal restraint slowing growth, depressed consumer sentiment, banks unwilling to lend and many businesses unwilling to borrow – and the other place is Irish. The big differences lie in Ireland’s unemployment rate being twice the UK’s at about 15%, the extent of pullback in housing construction and remaining housing over-supply being phenomenally greater in Ireland than in the UK, and the fiscal impact of bank bailouts being much greater in the Emerald Isles.