By Roger J Kerr
The NZ dollar has plunged eight cents in three weeks, but still the local moneymarkets are pricing in further RBNZ monetary loosening via OCR cuts.
The interest rate pricing appears to be more based on expectations of further cuts to interest rate in Australia by the RBA than a fair assessment of our economic and inflation outlook.
If the forward interest rate pricing feels wrong, it probably is wrong.
The money markets seem to think that the current political and debt problems in Europe are going to pull the global economy into a double-dip recession and our GDP growth will collapse.
It is very hard to agree with such a pessimistic view of the world right now.
If the money markets are correct, global share values would be plummeting and the Euro exchange rate would be totally collapsing.
Neither is happening.
The pricing of future OCR cuts by the interest rate markets also gained some credence from the March quarter retail sales and unemployment numbers.
Neither is cause for concern in my view, in terms of the growth momentum in the economy.
I place much more store on the big drivers of GDP growth in New Zealand such as agricultural production and construction.
The latest National Bank region growth survey has a very high correlation (see chart below) to actual annual GDP growth.
The 0.70% increase in the regional growth index in the March quarter augers well for a +0.60% or +0.70% result come the GDP growth figures on 21 June.
Most economists have unwisely lowered their March quarter GDP growth forecasts to +0.30%.
After the run-down in inventories in the December quarter, agricultural production and manufacturing output lifted considerably in the March quarter.
The naysayers who see the NZ economy stalling in 2012 are now struggling to find the negatives.
Continuously citing “Europe” as the big risk for the NZ economy has lost its credibility as the European problems have actually had very little negative impact on our economy over the last 12 months.
Mild weather and fantastic grass growth late in to the autumn is having a far greater economic impact on the NZ economy, than some tin-pot southern European basket-case economy unprepared to take its medicine after 10 years of excessive welfare.
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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
Ohhh right Roger. Yes the economic climate is looking just dandy alright.
Let's see: exodus to Australia is at what level?
Personal debts levels are what?
The OCR is predictied to what? hence what is the economic outlook from the RBNZ?
The Current Account deficit is.........?
GDP is a bogus stat due to........?
Even the NZ Government admit getting to surplus will require severe austerity by NZ standards.
So...Roger I ask, what planet are you on? The "naysayers" are just about everyone who lives in the real economic world
The people of NZ make our economy – not some numbers.
Correct - Justice - similar to the government judging the economy, Roger is disconnected from the NZpublic – the wider NZworkforce struggling to maintain their quality of life. Many of the small NZbusinesses are having financial problems.
All these things have in place for many years and the sky still hasn't fallen.
After 40 years of reading how our debt is going to sink us one day I'm getting pretty skeptical about it happening.
The simple fact is in a world demanding more and more quality agricultural products we are, for a time, in a very good position.
I agree with Colin... The policy response will be in the form of money printing and Govt spending.
USA is a littlebit hamstrung in election yr because the Republicans will fight any new spending initatives by Obama... Whoever wins will open the taps next yr.... in my view.
I like Richard Duncans term.... Creditism... for the last last 40yr we have had Creditism , rather than Capitalism
You want to know something , Roger Kerr is mostly right . Greeks dont like work and those with get -up -and -go, got up and went to Oz , the US , Canada etc years ago . Greece is a seriously unproductive country, yes tin pot being an apt description .
What Roger Kerr fails to recognise however , is that the Greeks could stuff everything up for us . We are a fully interconnected world, if Europe goes into decline , it will smack major Europoean and US Banks , and more seriuosly will affect Asian exports to Eurozone . We are not immune to such a prospect .
He is right about NZ , we need to keep our heads down and stick to what we we do best , stay out of debt , and save for the tough times ahead
Whilst the generalist Roger Kerr mocks the "tin-pot southern European basket-case economy unprepared to take its medicine after 10 years of excessive welfare..." one might add a note of caution to the GDP figures quoted and reflect on how that statement may well apply to NZ.
NZ's productivity levels have at best flatlined (or decreased) for over two decades, as figures from both BERL and the OECD show. This has resulted in the GDP per hour worked as % of USA (USA=100) being 57.7 for NZ, whilst Greece is at 57 and Portugal at 54, three of the lowest GDP productivity scores in the OECD. Australia meanwhile sits at 79.4, Spain at 80.1 and Ireland at 107.9.
So while we bask in Roger Kerr's smug world view, we should consider that we are a second world agricultural nation seeking a first world living based on milking cows and cutting down trees. That is not a sustainable growth strategy, as Fonterra are currently finding out, and the national outlook would not be so rosy had the Chch EQ's not happened.
My money is on commodity price and commodity price cycles as the big effect on GDP. In that sense Roger may be half right, Europe could be the least of our worries...
But who am I, the market was off out having a latte with its partner when I popped in for a natter.....
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