The Treasury is set to downgrade its economic growth forecasts when it releases its Pre-Election Fiscal Update (PREFU) in October, due to a weakening international situation.
But Finance Minister Bill English says stronger than expected growth in the first half of 2011 might offset that weakening outlook for New Zealand's trading partners, with the government's view being the economy was on the right track.
Concerns among New Zealand's major trading partners around slower growth, the impact of weaker public finances, and the scope and ability of authorities to react to the downturn, has led to downgrades of economic forecasts, Treasury says in its August Monthly Economic Indicators (MEI).
"Consensus forecasts of New Zealand’s trading partner growth have declined from 3.7% in 2011 and 4.4% in 2012 in April this year (the same as our Budget forecasts) to 3.1% and 4.2% (respectively) in August. Further reductions are expected in September before we finalise our forecasts for the Pre-election Update," Treasury says in the MEI.
"New Zealand’s trading partner growth is more heavily weighted to Asia and Australia than world growth; thus any downturn in developed economies would have a smaller direct impact on New Zealand through trade, even allowing for an indirect impact via Asia," it says.
"This weaker international outlook will be taken into account in our forecasts for the New Zealand economy. To some degree, it may be offset by the stronger domestic economy, but some impact on export volumes and commodity prices can be expected.
"In addition, the risks have increased since the Budget and are more heavily skewed to the downside. The volatility in markets may itself lead to lower growth through heightened uncertainty restraining investment and employment growth," Treasury says.
'We're on the right track'
Speaking to media in Parliament on Tuesday morning, English said Treasury made a reasonable point in the monthly update that the New Zealand economy was stronger than expected in the first half of this year, which might be offset by a weaker outlook for New Zealand’s major trading partners.
“We’ve yet to see how that would flow through, because our trading partner growth is focussed on China and Australia, and they’ve been doing a bit better than the UK, US and Europe,” English said.
“From our point of view we’re basically on the right track. We’re ship-shape, but the sea’s getting a bit rougher. I don’t think there’s much doubt about that,” he said.
(Updates with Finance Minister comments Tuesday morning).
16 Comments
Got to admit W.A.S.....I find myself looking for the off button...but I think Bolly's old vintage with the ring on the end of a string......and that just leaves Billy bob to stop pulling it.
oops! here it goes again rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrpp...lower OCR for longer bla bla bla wait n see bla bla......... do nothing bla bla..............bla ad nauseum.....
The likely outcome of a revised(more honest) Oct economic looking glass view of the economy, could well be a downgrade by S&P leading to more costly bank credit on the refi side ...leading to rates going up regardless of the what Bolly does with the ocr. I still expect the dog got it right in barking the ocr will rise to encourage saving and put the heat on the banks to burn some of their fat profits being made on the economy.
The future looks set to be more of this new normal.....for a very very long time.
So I'm on a diet...what's not to like about Willy!....hey who said the ocr determined the cost of credit borrowed by the big4 and others on the world markets...beats me...do you know MB?
It seems a no brainer that if the nz economy turns more pear shaped...then a downgrade is heading this way...hey presto the banks have to pay more when they refi...Bollard aint got the billions to lend them...QED rates will rise....but which ones....floating or long term...likely the answer will wait on the backroom chitchat and market fiddle by the banks to make it look like there is competition...but rates will rise.
That is not to say deposit rates will rise. I expect the thieving from savers to continue...which the banks are organising very well thank you...but the consequences from that game is the departure of more capital from NZ..from the banks...and into ....yes you guessed it...property.
A rise in property prices in Auckland at a time when the rorts are emerging in chch will have Bollard choking on his policies...property up means rents up means rent subsidies rise and cpi rises too. A nasty wee bit of poo on the shoe. CPI up more than it already is and Bolly will spit the dummy.
Wolly .. impossible to disagree with you .. wonder when Chaston and Hickey are going to swing down your way and do an interview ... pick your brain ...
New York Times 2 Sep 2011. The following inflation recipe is now being seriously contemplated for the US by the Federal Reserve.
A more aggressive option would be to raise its medium-term inflation target to 5%. If prices are expected to rise (as a result of mandated 5% inflation), banks, businesses and consumers will be more eager to spend their money before it loses value. That could have positive effects throughout the economy, since spending means more demand for goods and services, which means companies need to hire more employees, which means more spending, and so on. Additionally, inflation would lower the value of many people’s debt burdens and so help with the painful process of deleveraging.
Paragraphs 14 and 15
Global growth concerns sank all the major banks today, all closing more than 2 per cent lower, on the same day reports emerged that Standard and Poor’s is embarking upon a major review of global banks. The AA credit rating assigned to Australia’s banks is understood to be at threat due to their reliance on wholesale funding and increasing asset prices and household debt.
http://www.finnewsnetwork.com.au/archives/finance_news_network18644.html
When bull markets suddenly turn into “Capitalistic Swine Cultures”
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Looking into current developments on many fronts – the world will never recover again, simply because among the powerful in societies ethic and moral requirements and standards don’t prevail.
Treasury are downgrading their GDP growth forecasts because of a weakening international economic environment ........
..... come again , guys ..... it's not because you are grossly imcompetent , and sought to appease the current government with your over-the-top rosey forecasts to begin with ?
I would imagine that the Treasury report will simply mean that English will need to do yet more 'rebalancing' of the economy.... an interesting word - rebalancing - I have no idea what it means but when I listen to question time via the internet I hear it used incessantly.
Any guesses as to what it means?
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