Molesworth & Featherston (Weekend) – December 9th
Molesworth & Featherston - Weekend Update edition
Business and Political News
December 9th 2006
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It looks like the economy has pulled out of its low growth phase and it's growing modestly again, Treasury told ministers in its latest economic update.
When the December economic and fiscal update is published on the 19th of December, it’s likely to show growth is stronger than estimated six months ago at budget time. Treasury thinks GDP increased by between a half and three quarters of a percent from June to September this year - “similar to the previous two quarters but a recovery from low growth in the second half of 2005 as a whole.”
Lower petrol prices have removed one risk to the economy and helped to free up household income. That’s helped improve the outlook in businesses about their own growth and investment – even though the job market is still tight for employers, wages growth is ‘high’ and profit margins are down because employers are mostly not passing on cost increases. (Producer prices rose 6.9 percent last year.) There is evidence the housing market is coming back. (We've heard anecdotal evidence the market has quickened again in Auckland especially). Real Estate Institute figures showed house sales and median house prices rose in October, and the median number of days to sell a house fell from 37 in May to 30 in October. Residential building consents are up substantially.
Treasury thinks renewed immigration is one factor behind rising demand.
Higher wages seem to be having an impact too - undermining claims monetary policy doesn't slow the economy when so many mortgages are fixed (fixed mortgages don’t prevent, and probably help, home-buyers to make new housing purchases, which in turn releases cash to sellers; recipients of higher wages are also capable of looking ahead two years and deciding that their wallets will still be fatter when their fixed rates roll over. The renewed strength in housing seems to disprove a fashionable theory and means we should hear less about fixed interest rates preventing the Reserve Bank from doing its job.
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