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Australia and NZ - Weekly Prospects 31/03/08

Australia and New Zealand - Weekly Prospects

See... AusNZ_weekly_31mar08.pdf

* The RBA takes centre stage in Australia this week. The RBA's Board meeting on Tuesday should see the cash rate left unchanged at 7.25%, but Governor Glenn Stevens' six-monthly testimony to a Parliamentary economics committee on Friday will be more eventful. The Governor's prepared statement probably will signal that the RBA retains a bias to tighten policy; the Q&A session that follows risks being bogged down in political gamesmanship, but should include some insightful pearls of RBA wisdom. Monday's credit aggregates probably will see a 1%m/m gain for February (consensus 1.1%), and the February retail report on Friday should show modest growth of 0.3%, after sales unexpectedly flat-lined in January.

* In New Zealand, GDP data last week showed that economic growth accelerated to 1.0%q/q in 4Q, well above market expectations. The 4Q current account deficit narrowed owing to faster export growth, driven by shipments of dairy and petroleum products (from new production from the Tui oil field). Increased outbound shipments also drove an improvement in the trade balance in February, which returned to a small surplus after a deficit in the previous month. This week, this morning's NBNZ business confidence survey for March showed that more Kiwi firms expect business conditions to deteriorate further in the year ahead. A further fall in firms' own activity expectations adds support to a prospective stalling in economic momentum.

* For a number of months now, clouds have been gathering over the global economy as the interaction of credit turmoil, housing weakness, and rising energy prices has weighed on growth and sentiment. The recent slide in consumer confidence across the major economies has been particularly notable. However, the slowdown in overall economic activity has remained modest. Global GDP expanded at a trend-like pace of 2.7%q/q, saar in 4Q07 and is currently tracking a 1.7% gain this quarter. Even the US economy —which is at the locus of downward momentum—looks to be eking out a small positive GDP gain this quarter. The continued resilience of the global economy reflects the fundamental health of the nonfinancial corporates across the globe. The macroeconomic landscape is changing, however, as the US corporate sector appears to be heading toward retrenchment. As weakness has broadened from housing to consumer spending, both earnings and business confidence are now slipping.

* Japan's activity data continue to paint a picture of uneven, sluggish economic expansion. On the positive side, export volume growth has been surprisingly strong in early 2008—as is true across Asia. Tempering these gains is the continued weak growth of consumer spending and an apparent slowdown in the pace of inventory accumulation. One factor weighing on household spending is higher inflation, led by higher food and energy prices. There also has been a modest rise in core inflation (i.e., excluding food and energy), which may reflect firms' attempts to restore profit margins, which came under pressure starting last year.


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