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NZ outlook challenging but manageable

NZ outlook challenging but manageable

By Chris Smith (General Manager, CMC Markets New Zealand)

Friday 3 December 2010: The New Zealand Institute of Economic Research gave a very ordinary outlook for the economy leading into the New Year. Higher interest rates and weaker housing conditions are drags on the economy. The report went so far as to say that the country would only narrowly avoid a double-dip recession.

Many countries, including Australia, are experiencing similar growth dilemmas – we are now at a critical juncture. Economies of developed nations around the world are having to stand on their own two feet post the global financial crisis stimulus measures. In Australia’s case, higher interest rates and a higher Aussie dollar are hurting consumers and the export sector, slowing what was otherwise robust growth earlier in the year.

This week has seen a dramatic narrative play out on the international macroeconomic stage. Conditions were heavy at the start of the week with concerns over the effectiveness of the Irish bailout by the IMF and EU plaguing markets, while attention also focused on the solvency of Portugal and Spain. We were also concerned about the possibility of a rate rise in China and building tensions on the Korean peninsular.

The tables turned towards the end of the week when there was no word from China (just better-than-expected manufacturing numbers), the ECB president made encouraging comments about the Euro zone, there was no military activity in Korea to speak of, and the housing and employment data out of the US beat expectations.

It is clear the international risks are still present, but we are also still seeing evidence that the market is prepared to rally on better news. Lower volumes and ongoing developments overseas will also likely see heightened volatility into the New Year.

ENDS

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