Welcome to the last BNZ Weekly Overview for 2008.
It would be great if we could finish the year saying that there is clear light at the end of the tunnel for the world economy and we are going to get by relatively unscathed next year because of easing monetary policy, tax cuts, falling petrol prices and eventually food prices, and the absence of a housing oversupply. But that's not going to happen. The outlook for world growth continues to get worse on a weekly basis and increasingly offshore commentators speak in terms of the global recession extending into 2010 if not 2011.
Our economy has been in recession since the start of this year and it's touch and go whether we will record growth just above or just below 0% over 2009. There certainly will be some insulation for the economy from the factors noted above. But the tourism sector is about to take a major hit as people offshore refrain from international travel. This by itself is going to push our unemployment rate up relatively sharply. On top of that we have the continuing downturn in residential construction and consumers who are going to be focused for a number of years on rebuilding their balance sheets rather than taking advantage of whatever credit is available to gear themselves into more houses and consumer goods. This change in borrowing willingness is a worldwide phenomena and at least in New Zealand is not being compounded hugely in its impact on the economy by a massive credit crisis as banks refrain from lending - which is the case in United Kingdom and United States.
Interest rates look set to fall further over 2009 and we wouldn't read too much into this week's rise in the Kiwi dollar back above 59.0 cents. There is a clear risk that at some stage international investors look askance once more at our huge current account deficit and the Kiwi dollar could easily fall below 45.0 cents at some point next year. It's impossible to know when and that in itself sums up a lot of what 2009 holds. Major uncertainty.
But at least as Northern Hemisphere economies plunge into deeper recessions and shiver their way through winter we have some good weather in prospect for the next three or four months. Hopefully by the time we once again start putting on the woollies there will be hope reappearing for the global economy.
Best wishes for the summer holidays. The next Weekly Overview will appear on January 15 unless the weather is amazingly great in which case it will be a week later.