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Eurozone risks ease, but high NZ dollar a challenge
UNDER EMBARGO UNTIL 0100 30
October 2012
Eurozone risks ease, but high NZ dollar a challenge
•
Eurozone risks ease, but global uncertainties and
vulnerabilities remain.
• Canterbury
rebuild and low interest rates to drive a gradual New
Zealand recovery.
• No easy answers for
addressing the high NZ dollar.
The new
RBNZ Governor will have plenty of juggling to do according
to ASB’s latest Quarterly Economic Forecast. Ongoing
global risks will need to be weighed against gradual
improvement in domestic spending, in an environment where
low interest rates are encouraging a recovery in borrowing
demand.
ASB Chief Economist Nick Tuffley: “In the Eurozone, some of the extreme risks of financial dysfunction have been reduced. Solving the crisis still needs politicians to make good and timely decisions, and progress is taking time.”
“The Eurozone economy shows no sign
that its mild recession is easing. In addition, the US
still has to skirt its impending “fiscal cliff” after
the upcoming presidential election, which could bring a few
white-knuckle moments.”
Domestically, Canterbury’s
earthquake reconstruction is getting underway, though Mr
Tuffley notes the pick-up has been uneven at times.
“Amidst conditions of ongoing global risks and a high NZ dollar, an environment of sustained low interest rates will continue to provide support to domestic spending. However, the housing market in Auckland is continuing to heat up and runs an increasing chance that sizable price increases will spark wealth-related spending.”
“The side effect of the NZ economy being in much better shape, relatively, than countries such as the US and UK, is a high exchange rate. The issue is can much be done about alleviating this pressure? Weighing up feasible options, some of the costs appear considerable, such as higher import costs if the NZ dollar fell or a greater likelihood of boom/bust housing and capital investment cycles.”
Mr
Tuffley says that a government policy focus on improving
productivity growth and the ease of doing business would
help mitigate the impact of the NZ dollar on affected
businesses.
ENDS
The embargoed report is attached. Embargoed_ASB_Quarterly_Economic_Forecast__October_2012_FINAL.pdf
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