BNZ Weekly By Chief Economist Tony Alexander
Welcome to the May 15 2008 editions of the BNZ Weekly and Offshore Overviews.
It has been another good week for exporters with the NZD falling to 77.6 cents following weaker than expected retailing numbers this morning. All the evidence shows that after four and a half years of raising then maintaining high interest rates the Reserve Bank has finally crunched the domestic sector. That is not good news for retailers or borrowers but it is fantastic for the economy because we can now more firmly state than at any time since 2004 that interest rates are coming down.
We expect monetary policy easing to start in September and by the end of the year two year fixed housing rates could be getting close to 8%. This will help stem housing market weakness but before then turnover will remain light and vendors will cut prices and take properties off the market while buyers risk getting too optimistic about how far prices will fall.
This is especially so as the coming sharp decline in residential construction will eventually produce a dwelling shortage late next year. We examine population growth, occupancy rates, and consent issuance to estimate which territorial authorities may currently be experiencing an under or over-supply of dwellings.
We calculate shortages in Queenstown and non-central Auckland, and over-supplies in many regional locations. Come late 2009 though under-supplies are likely to dominate.
We also look at why employers should avoid getting too optimistic about the labour market shifting in their favour. And we add up rises in food and petrol prices plus higher mortgage rates to estimate household wallets are taking a $3b hit this year – hence this morning’s retail numbers showing the greatest quarterly decline in spending in 11 years.