Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Trading Partner Growth Forecasts Plummet

Data Flash (New Zealand)

NZ: Trading Partner Growth Forecasts Plummet

As expected, the October edition of Consensus Forecasts has revealed a huge downward revision to forecasts of GDP growth for New Zealand's largest trading partners.

The 14-country index that is followed by the RBNZ now points to average trade-weighted trading partner growth of just 1.3% yoy in 2001 (previously 1.8% yoy ) and 2.1% yoy in 2002 (previously 3% yoy).

The total cumulative downward revision over both years since the July edition - that used by the RBNZ when compiling the forecasts in its August Monetary Policy Statement (MPS) - is now a staggering 1.9pps.

In its August MPS, the RBNZ produced an alternative lower growth scenario which according to the Bank's forecasts was consistent with an official cash rate (OCR) around 75bps lower than the baseline scenario (the baseline scenario projected the OCR to remain around 5.75-6%).

As the chart below shows, we estimate - perhaps conservatively - that the October consensus forecasts imply a scenario that is several multiples worse than the Bank's alternative scenario.

All other things equal, and assuming that lower world growth feeds through into lower commodity prices etc in a broadly proportionate way, this would suggest that the OCR should be 200bps or more lower than the RBNZ's August baseline scenario - ie sub 4%.

Of course, not all else is equal. For example, the economy grew by much more than the Bank expected in Q2 and the NZD is tracking a little below the RBNZ's forecasts. Moreover, most economists expect a strong rebound in global growth later next year as exceptionally easy monetary policy (and in the case of the US, fiscal policy) underpins a synchronised global recovery.

Nonetheless, if the RBNZ is to be consistent, it is difficult to see how it could not now conclude that the OCR needs to be set somewhat lower than the present 5.25% (the Bank has already eased 50bps since August).

We think a 25bp cut is close to a done deal. Moreover, we think that a 50bps cut is also a fair prospect (35% probability), especially given that the next meeting is not scheduled until 24 January.

Indeed, while not our central call, should the flow of data remain very negative, we think it is not inconceivable that the OCR could be lowered to 4.5% following the 24 Jan meeting. In this scenario, Q1 2002 GDP is likely to be flat, if not negative. We think this is a distinct possibility given the precipitous declines in both business and consumer confidence (the latter confirmed by last night's Colmar Brunton survey, which showed a further fall in consumer confidence from -1 to -10 - in line with last week's TV3 survey).

Darren Gibbs, Senior Economist, New Zealand


This, along with an extensive range of other publications, is available on our web site http://research.gm.db.com

Please do not respond to this mailbox. If you need to update your contact information or request new research, contact your Deutsche Bank Sales Contact.


© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

Manawatu-Whanganui Projects: PGF Top-Up To Rural Broadband Roll-Out

The government has effectively raided the $3 billion Provincial Growth Fund to top up the budget for the second phase of its rural broadband initiative, filling in mobile 'black spots' and ensuring broadband is available to marae that don't have access now. More>>

ALSO:

Other Windy Cities: Auckland-Chicago Named A Top 10 ‘Most Exciting’ New Route

The inclusion of Auckland-Chicago on Lonely Planet’s Where to fly in 2019? The 10 most exciting new flight routes list comes just two weeks before Air New Zealand prepares to celebrate its inaugural flight to Chicago’s O’Hare International Airport on 30 November. More>>

Deadly Strain: ESR Ups Its Reporting On Meningococcal Disease

The increasing number of cases of Group W Meningococcal disease (MenW) has prompted ESR to increase its reporting on the disease to the Ministry of Health. ESR has upped its reporting to weekly. More>>

ALSO:

Very Small Things: "Game-Changing" 3D Printing Technology Launched

New Zealand microfabrication researchers Andrea Bubendorfer and Andrew Best, the co-inventors of a new way of fabricating very small things with Laminated Resin Printing (LRP), are part of Callaghan Innovation’s MicroMaker3D team launching the new patent pending technology in the US this week. More>>

ALSO: