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BNZ Weekly and Offshore Overviews Jan 31 2008

Welcome to the January 31 2008 editions of the BNZ Weekly and Offshore Overviews.

This week for New Zealand we have learnt that residential construction is falling away, non-residential construction activity still looks okay, export growth is shooting through the roof led by the dairy sector, lending growth to households is finally slowing down after many years of binge borrowing, and removing one-offs the government continues to run an obscenely huge fiscal surplus. Bring on the tax cuts. Wholesale interest rates have not changed from a week ago.

The Kiwi dollar however has risen almost two cents against a weaker greenback undermined by the 0.5% cut in interest rates overnight, another wave of data showing weakness in the US housing market, and only 0.6% annualised growth in the US economy over the December quarter last year which was half the rate the market had been expecting.

The Australian dollar has also risen near two cents against the greenback this week in the absence of any major data releases. The key theme there remains underlying strong inflationary pressures and a reasonable growth outlook underpinned by China.

In the Euro area business confidence has improved recently but consumer sentiment weakened, and ECB officials have largely been at pains to stress their extreme unwillingness to cut interest rates in the near future. Support for the Euro especially against the greenback looks good in the short term.

In the UK the Bank of England Governor was reappointed, data came out showing weakness in the housing market and home lending and that's about it. In Japan inflation hit a nine-year high of 0.7% but industrial production growth in December was slightly weaker than expected though up 1.4% from November.

China's sharemarket has fallen over the past week whereas markets in most other economies have improved by between 1% and 4%. There are strong worries about the worst snowstorm since 1954 boosting inflation at a time of slowing economic growth. Very worrying if you like happy non-voters.


(See attached file: WOJan31.pdf)(See attached file: OOJan31.pdf)

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