free lunch
July 09 forecasts
Economic
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Transport
Retail
Kneecapped by the currency | Forecast StoryPDFOptimism that the world economy might be
through the worst of the downturn has mounted over the last few months,
although global growth looks set to remain below-average through until the end
of next year. But New Zealand’s short-term growth prospects have been damaged
by the higher exchange rate. Although the massive monetary and fiscal stimulus
are leading to a stabilisation in some domestic indicators (most notably the
housing market), an economic recovery of any substance requires a lift in
export incomes. The stronger New Zealand dollar makes that more difficult to
achieve, and we do not expect economic growth to regain much momentum until the
world gathers speed again in 2011. Of most concern, we see little scope for
substantial export volume growth over the next five years, leaving room for
another balance of payments blowout and potential credit downgrade. The lack
of political urgency in responding to the current financial crisis suggests
that government policy will continue to undermine, rather than bolster, New Zealand’s medium-term potential growth rate.
Household ForecastsThe short-term outlook for households has
improved marginally since our March forecasts. Our fears of a sharp
deterioration in the New Zealand labour market over the March quarter did not
come to fruition, house prices appear to be stabilising, and net migration has
returned with gusto. However, any upgrade in the short-term is more than made
up for by the deterioration in our medium-term outlook for households – with
unemployment now forecast to persist above 5% and the price of consumer goods
expected to rise, as a burgeoning current account deficit drives down the value
of the New Zealand dollar.
Business Issues ForecastsUncertainty has reigned supreme over the
past two years, with both demand and costs showing an unprecedented degree of
volatility. With uncertainty declining other, more fundamental, issues are coming
to the fore – namely profitability. Low profitability will drive firms to cut
back on investment even in the face of record low interest rates. Although
profitability will eventually return, trading conditions will remain difficult
over the next five years.
Financial Markets ForecastsInternational investors are rediscovering
some appetite for risk as the outlook for the world economy has stabilised. As
a result, the New Zealand dollar has strengthened considerably and government
bond rates have rebounded from their lows. The exchange rate and bank funding
costs are keeping monetary conditions tighter than might otherwise have been
expected, and these factors will further quell domestic inflation pressures
over the next 18 months. New Zealand’s high international debt levels and
persistent current account deficit will hang over the economy over the next
four years, and we have incorporated a currency downgrade in 2012/13 as markets
get jumpy about the riskiness of investing in New Zealand.
Fiscal ForecastsThe last 12 months have seen The Treasury
significantly scale back its forecasts for the fiscal position. This change
has put the pressure on the National-led government, but National’s first
budget smacked of missed opportunity. The government couldn’t keep all its
election promises, but chose to cancel tax cuts rather than attack major areas
of inefficient spending left by the last government. It seems very likely that
they will reintroduce tax cuts ahead of the 2011 election, as our economic
outlook suggests they may have some room to move by then. But in the absence
of any significant spending reforms, the government books will not reach
anywhere near surplus during the next five years.
External ForecastsWe are now seeing the first phase of the
recession’s effect on our external sector, with export prices having been hit
as international demand for commodities retreats. But we expect commodity
prices to strengthen over the first half of 2010, while prices for manufactured
goods remain weak. As manufactured goods are a relatively small part of our
export sector, but dominate imports, we see an improvement in the terms of
trade occurring from early 2010. Exports will ease this year, particularly in
the services sector due to the weak tourism industry. Import volumes will also
fall as consumers change their spending habits and business investment remains
weak. Due to the dominating effect of lower imports, we expect the current
account deficit to improve substantially over the next year, falling below 5%
of GDP by mid-2010. However, when imports pick up again over 2011/12 we expect
the current account deficit to rapidly expand back towards 9% of GDP by 2013.
International ForecastsNew Zealand’s export market is expected to
shrink by 1.1% over 2009, as measured by the size of our trading partners’
economies. Nations around the world are struggling with falling output and
rising unemployment. But like the gains in recent years, hits to economic
activity have been distributed unequally across countries. The collapse in
world demand for manufactured goods has hit Asian economies particularly hard,
while lower commodity prices are hurting Australia. But financial markets are
showing signs of stabilisation, and there have been some small upside surprises
in recent economic data out of the US. With real interest rates now negative in
most developed countries, and fiscal stimulus in overdrive, we see scope for
more signs of life from the global economy this year. But the recovery in
global output over 2010 is expected to be anaemic, and consumers in the
developed world will be slow to regain their confidence to spend.
Economic OutlookAnalysts have been quick to get their heat
lamps out and draw attention to the possible emerging signs of growth in the
garden that is the world economy. Having suffered a severe rotary hoeing over
the last two years, the appearance of some small green shoots has been
surprisingly rapid.
Recent releases
EconomicExports / imports 29/06/2009
May 09 | annual balance: -$3.04bn
GDP 26/06/2009
Mar qtr 09 | production a.a.p.c: -1.0%
Balance of payments 25/06/2009
Mar qtr 09 | deficit as % of GDP: 8.5%
Tourism 22/06/2009
May 09 | arrivals a.p.c: 1.0%
Manufacturing 15/06/2009
Mar qtr 09 | real output q.p.c: 2.7%
Retail sales 12/06/2009
Apr 09 | excl. auto a.p.c: 2.5%
Monetary policy 11/06/2009
Jun qtr 09 | OCR: 2.50% (prev. 2.50%)
Terms of trade 10/06/2009
Mar qtr 09 | a.p.c: 3%
Fiscal update 28/05/2009
May 09 | OBEGAL ye forecast: -$7.74bn
Producer prices 18/05/2009
Mar qtr 09 | inputs a.p.c: 4.7%
Government accounts 8/05/2009
Mar qtr 09 | OBEGAL ytd: -$233m
Employment 7/05/2009
Mar qtr 09 | unemployment rate: 5.0%
Labour market 4/05/2009
Mar qtr 09 | Unadjusted LCI a.p.c: 5.2%
Borrowing / lending 29/04/2009
Mar qtr 09 | housing debt a.p.c: 3.0%
CPI - inflation 17/04/2009
Mar qtr 09 | a.p.c: 3.0%
May 09 | annual balance: -$3.04bn
GDP 26/06/2009
Mar qtr 09 | production a.a.p.c: -1.0%
Balance of payments 25/06/2009
Mar qtr 09 | deficit as % of GDP: 8.5%
Tourism 22/06/2009
May 09 | arrivals a.p.c: 1.0%
Manufacturing 15/06/2009
Mar qtr 09 | real output q.p.c: 2.7%
Retail sales 12/06/2009
Apr 09 | excl. auto a.p.c: 2.5%
Monetary policy 11/06/2009
Jun qtr 09 | OCR: 2.50% (prev. 2.50%)
Terms of trade 10/06/2009
Mar qtr 09 | a.p.c: 3%
Fiscal update 28/05/2009
May 09 | OBEGAL ye forecast: -$7.74bn
Producer prices 18/05/2009
Mar qtr 09 | inputs a.p.c: 4.7%
Government accounts 8/05/2009
Mar qtr 09 | OBEGAL ytd: -$233m
Employment 7/05/2009
Mar qtr 09 | unemployment rate: 5.0%
Labour market 4/05/2009
Mar qtr 09 | Unadjusted LCI a.p.c: 5.2%
Borrowing / lending 29/04/2009
Mar qtr 09 | housing debt a.p.c: 3.0%
CPI - inflation 17/04/2009
Mar qtr 09 | a.p.c: 3.0%
BuildingNon-residential building 29/06/2009
May 09 | value a.p.c: 35.1%
New dwellings 29/06/2009
May 09 | excl. apart a.p.c: -37.8%
Migration 22/06/2009
May 09 | annual (net): 11,202
House sales 11/06/2009
May 09 | a.p.c: 43.9%
Work put in place 9/06/2009
Mar qtr 09 | total real q.p.c: -0.7%
House prices 8/06/2009
May 09 | a.p.c: -8.1%
Building / vehicle costs 18/05/2009
Mar qtr 09 | residential a.p.c: 1.9%
Residential rents 15/04/2009
Mar qtr 09 | a.p.c. 0.1%
May 09 | value a.p.c: 35.1%
New dwellings 29/06/2009
May 09 | excl. apart a.p.c: -37.8%
Migration 22/06/2009
May 09 | annual (net): 11,202
House sales 11/06/2009
May 09 | a.p.c: 43.9%
Work put in place 9/06/2009
Mar qtr 09 | total real q.p.c: -0.7%
House prices 8/06/2009
May 09 | a.p.c: -8.1%
Building / vehicle costs 18/05/2009
Mar qtr 09 | residential a.p.c: 1.9%
Residential rents 15/04/2009
Mar qtr 09 | a.p.c. 0.1%
TransportTransport update, May 2009
(22/06/2009)
Transport update, March 2009
(22/04/2009)
Transport update, February 2009
(20/03/2009)
Transport update, January 2009
(20/02/2009)
Transport update, December 2008
(14/01/2009)
Transport update, November 2008
(19/12/2008)
(22/06/2009)
Transport update, March 2009
(22/04/2009)
Transport update, February 2009
(20/03/2009)
Transport update, January 2009
(20/02/2009)
Transport update, December 2008
(14/01/2009)
Transport update, November 2008
(19/12/2008)
RetailRetail Report, June 2009
(1/07/2009)
Retail Report, May 2009
(2/06/2009)
Retail Report, April 2009
(30/04/2009)
Retail Report, March 2009
(27/03/2009)
Retail Report, February 2009
(27/02/2009)
Retail Report, January 2009
(30/01/2009)
(1/07/2009)
Retail Report, May 2009
(2/06/2009)
Retail Report, April 2009
(30/04/2009)
Retail Report, March 2009
(27/03/2009)
Retail Report, February 2009
(27/02/2009)
Retail Report, January 2009
(30/01/2009)
Trade deficit shrivels 29/06/2009May 09 | annual balance: -$3.04bn
The annual trade deficit shrank substantially during May to $3.0bn, on the back of a fourth consecutive monthly trade surplus. As a percentage of exports, the monthly trade surplus was the largest since 1993. The recession has taken a huge bite out of the annual trade deficit, and we expect this trend to continue into 2010.
More large consents keep underlying weakness at bay 29/06/2009May 09 | value a.p.c: 35.1%
Although the total value of non-residential building consents eased back from last month’s record high, activity was still among the strongest on record. Once again, there was a significant amount of large consents (totalling $170m), suggesting that the underlying base of activity remains relatively fragile.
Commentary
Articles
Auckland lifestyle on sale
(19/06/2009)
Our confused response to market power
(12/06/2009)
Talked into recession?
(5/06/2009)
Can we do better preventing child maltreatment?
(29/05/2009)
How low can you go?
(22/05/2009)
(19/06/2009)
Our confused response to market power
(12/06/2009)
Talked into recession?
(5/06/2009)
Can we do better preventing child maltreatment?
(29/05/2009)
How low can you go?
(22/05/2009)
Financial
A small setback for sentiment
(26/06/2009)
Jawboning fails to move the market
(19/06/2009)
Believe the green shoots and give up cutting
(12/06/2009)
It's the currency, stupid
(5/06/2009)
(26/06/2009)
Jawboning fails to move the market
(19/06/2009)
Believe the green shoots and give up cutting
(12/06/2009)
It's the currency, stupid
(5/06/2009)
International
Short-term optimism, long-term despair 3/07/2009Global economic stabilisation, rising consumer and business confidence, and an improving trade position are all factors helping to allay fears surrounding the magnitude of further declines in New Zealand economic activity. However, the New Zealand economy has already shrunk 3.0% over the 15 months to March 2009. Even if trading conditions are unlikely to get any worse – they are already extremely difficult, and will remain so for some time.
Financial weekly: PDF | Calendar | Strategy | Graphs
Why have an Emissions Trading Scheme?3/07/2009As the main political parties seem to support the Emissions Trading Scheme (ETS) in some shape or form, one could be forgiven for thinking that the current Select Committee review of the ETS by the government is pointless.
KiwiSaver turns two26/06/2009New Zealand’s KiwiSaver scheme turns two on 1 July. According to its supporters it has been wildly successful; the numbers enrolling have certainly exceeded original estimates. I’ll look at how real that success has been shortly and also how the scheme might evolve over the longer-term, but firstly let’s look at some of the features of the scheme that make it mildly revolutionary.
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