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BNZ Weekly Overview and Offshore Overview 13/11/08

Welcome to the November 13 2008 editions of the BNZ Weekly Overview and Offshore Overview.

This week wholesale interest rates in New Zealand have declined at a relatively rapid pace in anticipation of the Reserve Bank cutting the official cash rate strongly come December in response to the continuing deterioration in growth prospects offshore. Job numbers fell by 240,000 in the United States in October, one measure shows house prices in the United Kingdom falling over 3% recently, and business sentiment has fallen sharply across the Tasman.

Increasing worries about world growth have pushed the Kiwi dollar back down towards 56.0 cents after trading above 60.0 cents on Monday. Early in the week a bout of optimism went through the markets in response to the huge fiscal stimulus package equal to 16% of GDP announced over the weekend by the Chinese.

On the data front locally this week we have seen a downgrading of growth forecasts and increased fiscal deficits projected by Treasury, the Reserve Bank has expressed confidence in New Zealand’s banking system but noted vulnerability to offshore funding, retail spending fell 0.9% during the September quarter, and mixed numbers appeared for the housing market in October. That is, sales were 35% down from a year earlier in October and off 59% from October 2003. But the median dwelling sale price improved $5,000 in the month while the average number of days taken to sell a dwelling also declined.

It will be interesting over the next few months to see how some relatively strong competing forces play out. On the plus side we have falling interest rates, falling petrol prices, recent tax cuts, and another round coming in April. On the downside we have developers placing construction projects on hold, an unemployment rate heading toward almost 6%, a potentially severe downturn in tourism to come, dwelling construction falling away to the lowest level of activity since 1983, and the worst global downturn since the end of World War II.


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