Welcome to the October 16 2008 editions of the BNZ Weekly Overview and Offshore Overview.
There is a growing view internationally that the extensive and expensive bank packages announced overseas will stem the credit crisis and avoid the Great Depression scenario. But worries about the depth of the recession to come have worsened resulting in sharemarkets giving up the large gains recorded on Monday.
Global recession looks guaranteed and that means a deteriorating outlook for the NZ economy with reduced commodity prices, manufacturing goods demand, and a potentially severe tourism downturn.
We will receive some insulation from easing fiscal and monetary policy with the Reserve Bank expected to cut its cash rate 0.75% next week to 6.75% - on the way to 5.25%. It is also possible net migration flows will improve. But the absence of a guarantee on bank wholesale funding in the scheme forced upon our government by Australia’s move over the weekend risks creating credit availability issues here.
It is highly likely that just as details of the retail guarantee scheme relevant to finance companies have been altered, so too will some move occur on the wholesale side. But even allowing for that, the sea-change in attitudes toward credit availability overseas will permeate through to our economy over time as well.
For now our view remains of good growth potential over 2010. But between now and then downside growth risks will dominate and businesses must further boost attention to cash flow management.