BNZ Weekly Overview
BNZ Weekly Overview
Welcome to another year of global uncertainty, waiting for the Christchurch rebuild, low inflation and low interest rates, yet firming house and farm prices and a volatile yet probably firming NZ dollar.
Welcome to the January 19 2012 issue of the BNZ Weekly Overview.
I hope everyone has had or is still having a good break. I am currently in Guangzhou checking out the scene here and in Hong Kong for New Zealand companies and will this year, as indicated in the last few Overviews for 2011, be writing about the opportunities presented by China’s two century overdue return to producing over 25% of world GDP.
This week the Overview commences with a discussion on that issue but we also look at the economic data for NZ which have appeared over the past five weeks. What they tell us is essentially the message being put across here for almost all the second half of 2011. Our economy is weak and interest rate pressures minimal.
• The NZ economy is in fundamentally weak state with 1.3% GDP growth for the year to September clouding the fact that if you strip an inventories build-up out of the data growth was only 0.1%. We are going nowhere.
• Both business and consumer sentiment measures have declined recently and allowing for the new correlation between the former in particular and GDP growth suggest minimal growth in our economy this year.
• Inflation is a complete non-issue with this morning’s surprising result of a 0.3% CPI fall for the December quarter making my mortgage position comment this year a very easy one. I stay floating.
• The economic fundamentals would suggest a weakening NZD this year but that probably will not happen and exporters and ex-pats who did not get transactions done when the NZD was near US74 cents and 48 pence in November are unlikely to see those levels again unless the Euro collapses. The NZD is being supported by continuing good commodity prices – especially dairy – and an underlying view that Europe will be sorted out in a bureaucratic and messy manner.
• The NZ housing market will continue to improve this year on the back of growing awareness of the four decade low in construction worsening the shortage – especially at the lower end of the market. First home buyers will increasingly appear but investors not until late n the year when a stronger labour market will bring even more young buyers. Worsening net migration outflows for most of the year will cap but not reverse the market’s gains.
• Retailing will continue to be weak and retailers should continue rationalisation plans and keep stocks low.
• As much uncertainty as ever remains about the timing of Christchurch’s rebuild, when farmers will shift their focus from debt repayment (wise) to spending, and when householders will engage in “catch-up” spending. That means you should really treat all forecasts very carefully – especially as the global uncertainty is highly likely to continue. Re farmland – prices are likely to rise at a firm clip.