Welcome to the October 23 2008 editions of the BNZ Weekly Overview and Offshore Overview.
The week started on a positive note internationally with evidence of the credit crisis easing causing rallies in sharemarkets. But surging concern about corporate earnings and the depth of the recession has seen markets decline. Because the Kiwi dollar is viewed as a risky asset this means that whereas we were trading above 62.0 cents earlier in the week we have finished close to 59 cents this afternoon with further downside likely in coming months as the Reserve Bank follows up this morning's 1% cut in the official cash rate with another 0.5% cut in December. The cash rate is likely to bottom out near 5%.
During the week data have appeared showing declining numbers of Kiwi's travelling overseas for holidays and a worsening decline in the number of visitors to New Zealand. We repeat our warning that the tourism sector is likely to take a significant hit over the coming year as consumers offshore close their wallets in an environment where they have seen their wealth decline sharply and where unemployment rates are likely to rise quite substantially. New Zealand retailing and housebuilding prospects also look particularly poor.
But we mustn't forget that our economy does have some insulation from falling petrol prices which are now only just above levels of a year ago, slowly falling interest rates, a lower exchange rate, easing fiscal policy, and long overdue infrastructure spending - hopefully some which might stop the continuing painful increases in electricity prices. Local authority rates which only rose at the rate of inflation or less would also be helpful to New Zealand household budgets.