Tony Alexander

Economic Commentaries

Sporadic 20 September 23 2015

Wednesday September 23rd 2015

Summarised Outlook and Situation Report

Growth in the NZ economy has slowed recently and business and consumer confidence levels have fallen. Risks internationally have shifted further to the downside – most notably with regard to China – and with the Federal Reserve backing away substantially from signalling they will raise rates shortly we need to consider how we could be living through the 1950s – 1060s again with sustained low interest rates. This outlook means ongoing support for housing markets around New Zealand though currently measures to slow Auckland’s pace of price rises are working and investors are flocking to the more affordable regions for a period of catch-up repricing.

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Sporadic 19 September 10 2015

Thursday September 10th 2015

RBNZ Almost Back To Square One

The Reserve Bank met expectations this morning by cutting the official cash rate another 0.25%. Come the end of October they will probably have unwound all of last year’s tightening – thus reversing rate rises for the second time post-GFC. Other central banks like the RBA, ECB, and Riksbank have also reversed rate rises as the post-GFC world is producing far lower inflation than traditional economic models have suggested. those models unfortunately no longer work and as we have warned for over five years now you need to be very careful about paying too much attention to forecasts of interest rates – and perhaps most other economic variables. Build flexibility and resilience into your business operations.

In this Sporadic issue number 19 I take a look at a long list of reasons why forecasting accuracy has gone out the window.

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Sporadic 18 – September 2 2015

Wednesday September 2nd 2015

Some Perspective On China

Things have slightly settled down in sharemarkets (slightly), so here are some thoughts on what is happening in China, plus some comments on dairying and a reminder of the housing boom spreading out of Auckland into the regions – except Christchurch.

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Sporadic 17 August 17 2015

Monday August 17th 2015

Undervalued Regional Housing Markets

We have reached the point in the housing cycle when investors and frustrated first home buyers look outside of Auckland for more bite-sized houses rather than the too big to chew Auckland ones. The movement this cycle will be accentuated by the removal of expectations that interest rates will be rising anytime soon, and the fact that rates are at their lowest levels since the 1960s. Slightly rising unemployment won’t crimp this regional shift much, especially as the dairy boom never produced much jobs growth off the farm anyway. So how do you assess where to look/ there are many factors to consider and in this issue of Sporadic I throw into the mix just one factor – current prices relative to long-term trends against the country as a whole. You can look at the graphs and form your own opinion as to which parts of the country seem most overdue for a period of catch-up.

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Sporadic 16 July 30 2015

Thursday July 30th 2015

Insulating Factors Helping

The sharp fall in dairy prices happening at the same time as falls in business and consumer confidence readings has led some people to predict recession and further large falls in interest rates and the exchange rate. However ahead of our last two recessions in New Zealand both interest rates and the exchange rate rose sharply to high levels. This time both are falling. In additionall, when the dairy payout fell by 32% in 2003 the economy kept growing over 4%. The over 50% payout decline from the peak two season’s ago is bigger this time around, but it is associated with recent farm debt growth of 6% and not the 25% peak back then. Thus while dairying regions are going to feel pain this coming year, there are many mitigating factors and recession for NZ remains a low probability outcome – though not an impossibility.

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Sporadic 15 July 23 2015

Thursday July 23rd 2015

An Update On The Economy

In this issue of Sporadic I take a look at
• the easing of monetary policy this morning,
• how dairying is suffering but the woe is good for many other sectors and this means NZ growth is likely to continue,
• review some of the recent data releases,
• look at why legislation banning foreign house buying could be useful,
• look at why Chinese are buying property off their mainland,
• and reproduce part of the official 2002 NZ government apology to Chinese for discriminatory policies of the nineteenth and early twentieth centuries.

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Sporadic 14 July 12 2015

Sunday July 12th 2015

Chinese House Buying
It is probable that the true proportion of Auckland houses being sold to Chinese investors located offshore lies somewhere between 5% and the 39.5% estimated this weekend based upon surname data from an unidentified real estate agency’s sales from February to April. The vacuum of accurate information means formulating policy to address rising concern about foreign buying of NZ houses is extremely difficult. But even without the data it still seems sensible to at least adopt Australia’s rules restricting foreign buying of existing housing stock. We take a look at this issue in Sporadic 14 and also note that even Aussie rules aren’t in a true sense working.

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Sporadic 13 July 8 2015

Wednesday July 8th 2015

Failure’s Lessons
Listening to visiting ex-PM Helen Clark speak in Auckland last week I was struck at how her final comments regarding factors holding NZ back matched those summarised in my “What we Lack” series of papers put together back in early-2011. Fear of failure is one factor holding us back, but a new policy initiative from China shows we are not alone in that space. I take a look at issues surrounding this plus summarise developments since Sporadic 12 relevant to the likely SME operating environment – the upshot being things are getting worse but that can actually help many companies because it means lower interest rates, a lower exchange rate, and continued high migration flows. See the housing implications from that? Greece is mainly relevant to Europe and the stance of talks may now be shifting from negotiating a bailout to making sure Greece pays as high a price as possible for abandoning the Europe project, thus discouraging other recalcitrants. China’s slowing growth is more relevant to us so keep an eye on that.

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Sporadic 12 July 2 2015

Thursday July 2nd 2015

Implications of Unforecastability
In this issue of Sporadic I take a look at the many factors which are causing economic forecasts to be wrong and repeat earlier warnings that businesses need to explicitly allow for unpredictable operating environment changes. Plus from this issue on I’m adding back in the section “If I Were A Borrower What Would I Do?” in which I also explicitly allow for unpredictability of interest rates. Additionally, for over a month I’ve been noting the deterioration in NZ economic conditions and we can see the manifestation of this deterioration in the lower NZD and altered interest rates outlook. I’ll start having a quick run-through of recent developments – the rather important ones this week being the crystallisation of the Greek default risk, the further deterioration in China’s economic outlook prompting more interest rate cuts there, and of course the extra 5.9% fall in dairy prices back to 2009 levels. It never rains…. – which reminds one of the building risk of a repeat of the 1997/98 El Nino weather pattern.

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Sporadic 11 June 25 2015

Thursday June 25th 2015

How Much Are We Slowing?
In Sporadic 9 (“The Wind Shifts Direction”) issued on June 3, I looked at how prospects for growth in the NZ economy were deteriorating. Eight days later the Reserve Bank eased monetary policy as they also acknowledged that since the start of the year the negative developments have outweighed the positive ones. Is that still happening? That is, has the news we have received since June 3 been weighted toward the good side or yet again the bad side? Lets run through the items.

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