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BNZ Weekly Overview, Offshore Overview June 26 08

Welcome to the June 26 2008 editions of the BNZ Weekly Overview and Offshore Overview.

Tomorrow morning we expect data to be released showing the NZ economy shrank over the March quarter. Our economy has been hit by a large number of negative factors just when tight monetary policy was finally becoming effective in slowing growth. The result is crunched household budgets hitting retailing and the housing sector particularly hard.

We take a look at the things hitting our economy along with the reliability of confidence surveys, the closure of finance companies, and why interest rates may not fall as much as people think from later this year.

Since the last Offshore Overview four weeks ago the outlook for Euro-zone growth has deteriorated amidst heightened inflation worries expected to lead the ECB to raise interest rates soon. In the UK growth worries look about the same but inflation now is expected to exceed 4% soon and scope for the BOE to ease monetary policy seems slim given their stated desire to see growth slow down to prevent high inflation feeding into wage claims and business price-setting behaviour. In the US growth prospects have also dimmed with the Fed. indicating it is switching its attention to inflation and data releases tending to surprise on the bad side – especially in the housing market and consumer confidence.


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