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BNZ Weekly Overview

Welcome to the March 3 issue of the BNZ Weekly Overview.

This week we are running our monthly survey. If time permits please click on the link below and tell us if you feel the economy will get better or worse over the coming year. Also, if time permits, feel free to pen a sentence letting us know how things are in your industry currently, specifying what that industry is. The results will be released early next week. Many thanks to those who have responded in the past.

Prospects for growth in the economy this year have clearly taken a dive following the earthquake, but even heading into that tragic event the data were showing a recessionary finish to 2010 and start to 2011. Basically we were probably back in recession before the earthquake struck. Retail spending volumes fell 0.4% in both the last two quarters of last year. Retailing is in recession. Dwelling consents have fallen 10% in the past three months alone. House building is in recession. Tourist spending fell 10% last year, was 12% lower than a year earlier in the December quarter, and visitor numbers have declined 0.4% seasonally adjusted in the past three months. The tourism sector is also in recession. Imports of plant and machinery have declined 2% in value over the past three months so an earlier surge in capital spending could be easing off, house sales are flat and prices flat to down slightly, and lending to the private sector essentially stopped growing three months ago and was only 0.8% ahead of a year earlier in January.

Not everything is bad however. Strong growth in tractor registrations and farm sales show farmers are starting to spend – but from a very low not very noticeable base. Consents for factories were ahead 62% in the past six months from a year ago bespeaking of manufacturing strength. Export receipts were also up 0.8% seasonally adjusted in the past three months – though average growth is 1.2%. Export growth is therefore below average. Export commodity prices are soaring

But while goods exports and farm investment and spending are likely to continue to trend upward, it is probable that tourism will face a torrid time this year, until some temporary reprieve from the Rugby World Cup, given the images of New Zealand sent around the world. Net migration inflows will be worse than previously thought, businesses are likely to be more cautious in their hiring, debt raising, and capital spending, export education’s growth will likely stall, while consumers are highly likely to become even more determined to control spending and boost savings.

Add in rising raw material, intermediate goods, and energy prices courtesy of soaring global commodity markets, rising food prices, and a move toward tighter fiscal policy and the scene is set for a weak 2011 with limited but accelerating growth late in the year. Next year is likely to be much stronger, especially once the post-quake rebuilding kicks off. Businesses not directly impacted by the earthquake may want to spend the next 12 months focussing on boosting productivity and securing good staff ahead of what we still expect will be a tight labour market for skills come 2012. Also, although weak sentiment will cap housing activity this year, destruction of part of the housing stock will only worsen the growing physical shortage of dwellings which eventually will produce rising prices – next year.

The economy may have been back in recession and getting worse before the earthquake removed all doubt. That is why the Reserve Bank is highly likely to cut the official cash rate 0.25% or 0.5% next Thursday morning even though what Christchurch needs right now is not slightly lower debt servicing costs but basic living and business operating infrastructure – before Winter arrives.

Bring on 2012.


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