By Roger J Kerr
At the risk of sounding like a broken record, it just has to be repeated that it appears to me that the majority of economic forecasters are completely underestimating to likely GDP growth rates we will achieve in New Zealand this year.
The risk of the RBNZ underestimating stronger economic growth is a real one with monetary policy adjustments later in the year likely to be made too late and therefore too severe as they catch up.
In my humble (and sometimes mumbled!) opinion, the evidence continues to mount of GDP growth coming in well above current forecasts.
Consider the following recent developments to support my argument:
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The view from various local economists is that the debt/recession problems in Europe is a major 'headwind' for the NZ economy this year is just a load of "codswallop and hogwash". Our export trade with Europe is in the minor class and it is all food related that has not turned down. Where is the evidence that the recession in Europe is dragging the global economy (US and China) down? Latest US and Chinese economic data is stronger, not weaker.
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Agriculture production is through the roof with the fantastic weather conditions for grass growth over the last six months. Farmers are well past repaying debt to keep the bank manager happy, they are now spending and investing (i.e. applying fertiliser) their cash surpluses from my observation.
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Apparently the RBNZ are currently relaxed about the current inventory shortages and price increases in the Auckland residential property market (in terms of threats to medium term inflation). History tells us that the RBNZ wake up too late on property market up-cycles.
- Business investment is up, bank credit growth is on the up again, manufacturing is expanding again in line with global PMI improvements and there are early signs that the long-awaited recovery in residential property construction is finally commencing.
All adds up to +3% annual GDP growth over 2012.
There are only two headwinds in front of the NZ economy right now and both should have been risk managed in advance to reduce the negative impact.
The NZD/USD exchange rate above 0.8000 hurts exporter profitability and increased bank credit margins (bank cost of funds) from the European fiasco being passed through to household and corporate borrowers.
Outside these two irritations the economic fundamentals for New Zealand are in very good shape.
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* Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com
11 Comments
I’m amazed that Roger obviously not supports criticism from blogger’s commenting on interest.co.nz. Many articles in the past are indicating the situation can/ will change dramatically.
NZagriculture may be in a good economic position internationally, but for how much longer ? Roger – I think we have more then just 2 headwinds – possible bad weather conditions, an oil price spike (Iran), diseases, deteriorating purchasing power and/ or over supply to list a few more, could cause severe damage for our one sided economy.
I’m of the view that economic fundamentals aren’t right. More diversity would serve NZeconomic future far better. In today’s world not “megalomaniac operations”, but flexibility and more self sufficiency are the keys for NZsuccess.
It would be nice to hear back from you.
NZeconomic megalomania is reflected in another example “RENA”
Stop megalomaniac, economic operations in small New Zealand – our authorities cannot handle financially, technologically and operationally.
The cost of the Rena clean-up has sky-rocketed to $130m - and nearly a quarter has been funded by the taxpayer.
http://www.stuff.co.nz/environment/rena-crisis/6377764/Rena-clean-up-bi…
"There are only two headwinds in front of the NZ economy right now"
This guy's a buffoon. This is the scary side of economics as it is taught (we get op/ed's down this way from an economics teacher, same nonsense).
One supposes that these folk have a vested need for the impossible to happen, but until they prove that financial growth can be de-coupled from growth of physical activity (they ain't done so far) they're provably wrong.
Can we have an 'up'? Of course, but not permanent. Years ago we were predicting a downward saw-tooth, and if you only look at the next tooth fron the bottom of the last, I guess you can convince yourself it's an 'up'.......
Roger certainly has a record of broken predictions.
If he thinks the economy is in good shape, he is sadly mistaken.
Earthquake recovery is a non event. Growth will almost certainly be revised downwards once the impact of the EQs is recalculated.
You can always "feel" a strong or strengthening economy - this economy is weak and faltering.
The guy appears on Newstalk ZB......mmmmmmmmm...."financial advisor" mmmmm. the only thing he's missing are those dodgy shady glasses that Olly wears
This bloke is a plonker. Yes there are some bright sides to agriculture, but its not too harsh to say the domestic NZ economy is up shits creek. Or doesn't he think retail, construction and tourism are big parts of the economy. He talks of construction recovery - yes but off an awful base.
He claims Europe doesn't really matter. I bet there are few people in the tourism sector who would strongly disagree. Sure the Chinese are still visiting but they stay for a short time and spend bugger all in the local economy
As for over 3% GDP growth...we'll see. I still think around 2%.
Congratulations Roger for the positive outlook. From your detractors we hear the usual wailing, the only thing they didn't throw in is the old debt banshee.
"Positive impact: High income countries that are net exporters of food Countries such as New Zealand, Uruguay, Argentina and Denmark can actually benefit from a surge in food prices as the positive terms of trade effect more than offsets the mild negative impact on household consumption." The coming food price surge Nomura Investment Bank
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