RBNZ Drops Rate 50bps, But Why? And So What?

So the Reserve Bank of New Zealand (RBNZ) did what most economists were expecting and cut the official cash rate by 50 basis points, back to 2.50%, as an emergency response to the earthquake. Was it the right thing to do? Probably. Will it result in a harder inflation challenge later on? Possibly. From a confidence perspective, the earthquake did make a dent, but even before the earthquake things weren't exactly booming. So on balance the move will likely be positive for the New Zealand economy through 2011.

http://seekingalpha.com/article/257489-reserve-bank-of-new-zealand-drops-rate-50bps-but-why-and-so-what

Will New Zealand Drop Interest Rates?

Will the Reserve Bank of New Zealand cut the official cash rate in reaction to the earthquake? For that matter, what is the likely impact of the earthquake, and how should you think about New Zealand investments?

http://seekingalpha.com/article/254805-will-new-zealand-drop-interest-rates

New Zealand Q3 GDP - The Details

New Zealand saw an unexpected contraction in GDP in the September quarter, recording a -0.20% decline from the June quarter. On a year on year basis GDP was up 1.50% which was lower than consensus estimates for 1.80% growth. Much of the weakness was due to a minor loss of momentum and the impact of the Christchurch earthquake. However there are several reasons why this will likely be the low point as 2011 is set to be a strong year for economic growth in New Zealand.


Digging into the details on an expenditure approach, the chart below shows the breakdown, with residential buildings have the most significant negative impact in the quarter, and with net exports also having a negative impact (i.e. through higher imports and lower exports). Government expenditure also decreased as the government looked to cut costs, having recently been put on negative credit watch by Standard & Poor's. The residential buildings aspect is likely to be a positive contributor over the next year as rebuilding efforts take place in Christchurch, broadly this effect will add to overall GDP growth over the medium term.


On a sector basis, the most significant detractor was fishing, forestry and mining (mining will likely also fall somewhat as the Pike river coal mine disaster has seen the mine closed for the foreseeable future), with construction and manufacturing also falling. Slightly offsetting that was transport and communication and wholesale trade; which is a positive sign for the broader economy. The retail, accomodation and restaurants sector will likely receive a significant boost through 2011 as New Zealand hosts the Rugby World Cup (go the all blacks!).


So overall it was a negative result, but this was largely due to the short-term impact of the earthquake. Going into 2011 the New Zealand economy will likely pick up steam as the impact of the post-earthquake rebuilding, Rugby World Cup, still relatively loose monetary policy, and a general gathering of momentum underpin the recovery.

Sources
Econ Grapher Analytics www.econgrapher.com
Statistics NZ www.stats.govt.nz

Article Source: http://www.econgrapher.com/23dec-nzgdp.html

New Zealand Markets - Worth a Look?

Here's an update on the New Zealand markets. First up is a look at the currency, the NZD (also known as the "Kiwi") took a bit of a dive in the past week or so on the back of a few things; first there was the Ireland and wider sovereign worries in the EU, this took some of the risk off - and since the NZD is considered a risk currency i.e. correlated with equities, the NZD has also taken a bit of a fall. Which is unsurprising, as the NZD is more or less at the mercy of what the USD is doing in this pair. The other big thing that happened to knock it down a bit was the Standard and Poor's announcement putting New Zealand's sovereign rating on negative outlook (rated AA).


The question is, will these events be the catalyst that starts the Kiwi into free fall? Make no mistake about it, the NZD is well overpriced against the USD at the moment when you considered the fundamentals. It is well beyond the PPP rate, and is still at the high end of it's historical trading range, and quite a distance from the mean. So it wouldn't be surprising if the NZD did fall further, but of course, the USD could stop that if there were further weakness in the dollar. And of course as one of the carry trade currencies, monetary policy will also play a role.


And what of New Zealand equities? The valuations are still relatively attractive, and it's a good market to generate dividend income, with many high yielders on the NZX. On NZ equities, if you can't gain access to the New Zealand stock market directly there is the recently launched ETF; ENZL which so far is up about 10% since inception, and has clocked up about $55 in net assets. But one of the biggest attractions about the New Zealand market is its low rate of broker research coverage. This means the benefits to be garnered from doing additional research are much higher than e.g. the US, which means opportunities for relatively easy alpha capture. But on the economic outlook front, the prospects are probably similar to the US; the recovery is underway, but growth will almost certainly be sub-trend for a period. Macro aside, it's worth a look.

Sources
Econ Grapher Analytics www.econgrapher.com
Yahoo Finance finance.yahoo.com
Global View Forex www.global-view.com

Article Source: http://www.econgrapher.com/27nov-nzmarkets.html

Top 5 Economics Graphs of the Week - 6 November 2010

This week we look at the PMI results for China and the US and reflect on their implications. Then we review the monetary policy decisions out over the past week including the announcement from the US FOMC. Then we wrap up with a look at the US employment figures for October, and the New Zealand employment stats for the September quarter.

1. China PMI
China saw a continued rebound in its manufacturing PMI figures for October, with the official CFLP figure rising to 54.7 from 53.8, and the the HSBC index rising to 54.8 from 52.9. Within the CFLP PMI index, the strong points were Production (57.1 vs 56.4), New orders (58.2 vs 56.3), and Inventory (49.5 vs 49.1), while the lower points were Employees (52.1 vs 52.4), and Supplier delivery (49.3 vs 50.4). So overall a reasonably good result, and reflects the continued strength in the Chinese economy - which is showing through into a higher stock market, with the SSE composite rising 15% in October.

2. US PMI
In the US, the October PMI result was also relatively positive with the main index rising to 56.9 from 54.4 driven by strength in new orders, production, and new export orders - with imports falling (a positive sign for net exports). While the non-manufacturing index also rose to 54.3 from 53.2, driven by strength in production, a large spike in prices, and back log of orders. So overall the October results for the US (unless there is some quirk to it) helps provide evidence or support for the non-double-dip scenario. So it is a positive, but at the same time the fundamentals are not quite there yet for economic growth to be anything more than subdued/baseline.

3. Monetary Policy Rates
In monetary policy the main event was the US FOMC announcing the $600 billion asset purchase program, to be implemented at a pace of $75 billion per month. The other major moves were tightening of monetary policy rates in Azerbaijan (100bps), Vietnam (100bps), Australia (25bps), and India (25bps), and loosening of monetary policy rates in Iceland (75bps), and Latvia (12.5bps). Meanwhile other banks held rates due to low inflationary pressures and a desire to keep stimulatory monetary policy conditions to aid the economic recovery e.g. US, EU, UK, Japan.

4. US Nonfarm payrolls
Back to the US, the October nonfarm payrolls pleasantly surprised to the upside, with 151k jobs added in October vs consensus 60k and previous -95k (revised to -41k). Private payrolls grew 159k in October vs 64k in September. Average hourly earnings crept up slightly 0.2% and the average work week was 34.3 hours vs 34.2 in September. So overall, as with the PMI results another good result for the US, a positive from the perspective that it's not going down, but there's still a long way to go before the ground lost during the crisis can be recovered.

5. NZ Employment situation
In New Zealand the Q3 employment report saw the unemployment rate dip to 6.4% from a revised 6.9% in the June quarter. Total persons employed grew by 22k, with part-time jobs increasing 12k and full-time jobs expanding 10k. Across the sectors the jobs growth was relatively broad based with most sectors adding jobs. The figure reflects the progress, albeit slow, being made in the New Zealand economic recovery, but the subdued nature is showing through with deleveraging playing through. One major challenge for New Zealand is the high exchange rate which will impact on net exports, but a key driver of that is weakness in the US dollar. In terms of monetary policy the RBNZ has likely finished tightenings for the year, but will likely continue early next year as the recovery unfolds.

Summary

So we saw relatively strong PMI results in China which showed the economy is still running strong in the middle kingdom. The US also showed strong results in its PMI stats, providing some comfort against the double-dip scenario, but not yet being able to offer more than a subdued, sub-trend economic growth outcome. In monetary policy the major banks are holding tight but other banks are acting as the case demands, with several emerging economies opting to tighten or normalise monetary policy as inflation risks trump growth risks. In employment, the US showed a strong result in October, and New Zealand also showed a pretty good result in Q3. So overall it's a scene of economic recovery, but all is not yet clear and well.

Sources:
1. CFLP www.chinawuliu.com.cn & Markit/HSBC www.markiteconomics.com & Yahoo Finance finance.yahoo.com
2. Yahoo Finance finance.yahoo.com & Institute for Supply Management www.ism.ws
3. CentralBankNews.info www.centralbanknews.info
4. US Bureau of Labor Statistics www.bls.gov
5. Statistics New Zealand www.stats.govt.nz

Article Source: http://www.econgrapher.com/top5graphs6nov.html

RBNZ Holds OCR at 3.00%, Notes Earthquake Impact

The RBNZ (Reserve Bank of New Zealand) left the OCR (Official Cash Rate) unchanged at 3.00%, leaving banks' core overnight funding costs unchanged. The decision was expected by most, with most economists in New Zealand expecting the next move not to come until as late as December this year.

The RBNZ also released its detailed economic analysis report; the Monetary Policy Statement, where it outlined its views on the New Zealand economy and rationale for the decision. The Bank noted that (as with the expectations of those in the market) further tightening of monetary policy is likely to be more drawn out:

“Over time, it is likely that further removal of monetary policy support will be required. The pace and extent of further OCR increases is likely to be more moderate than was projected in the June Statement.”

The New Zealand Economy
In its assessment of the New Zealand economy the RBNZ noted the likely impact of the Christchurch earthquake (see below for more details), but it also honed in on the slowing of the pace of the global economic recovery; in particular in the US. But pointed out that New Zealand's key trading partners; China and Australia are both growing strong and will likely support demand for exports.

However the RBNZ did note the decline in the outlook for the household sector as deleveraging runs its course; thus resulting in a relatively subdued housing market and lackluster consumer spending. On the inflation front, unsurprisingly the RBNZ did not see significant underlying inflationary pressure, but did note the likelihood of a spike in short-term inflation.

“Overall, despite the weakened outlook, we still expect that growth will progressively absorb current surplus capacity over the next few years. In addition, changes to indirect taxes and earthquake impacts will cause headline inflation to spike higher over the coming year. Previous experience of GST increases, the fact that annual CPI inflation has been near 2 percent for the past year and a half, and the subdued state of domestic demand suggest this inflation spike will have little impact on medium-term inflation expectations."

Earthquake Impact
The RBNZ noted the potential economic impact of the 4th of September earthquake (7.1 magnitude). The earthquake significantly damaged buildings and infrastructure, and thus will have a short term negative impact on the economy; but over the medium term it is expected that there will be a net benefit to the economy with insurance payouts and reconstruction stimulating the faltering building and construction sector.

“The earthquake that struck Canterbury on 4 September has significantly disrupted economic activity and is likely to continue to do so for some time yet. Many homes and businesses have been damaged, as have significant parts of Canterbury’s public infrastructure. Eventual reconstruction and repairs will require considerable resources over the next year or two, particularly in the construction sector. If, in the aftermath of the earthquake, the prices of some goods and services increase temporarily, monetary policy would remain focused on the medium-term trend in inflation. The Policy Targets Agreement explicitly instructs the Bank to look through temporary price increases generated by a natural disaster."

Summary
Overall the RBNZ confirmed my previous suspicion that tightening would be on the go-slow for the rest of the year with perhaps only one more 25bp increase. As far as the New Zealand economy is concerned, the recovery is still relatively well entrenched, but GDP growth is likely to come in slower in the second half of 2010. There may well be a few quarters of slower growth, but 2011 promises to bring stronger growth as the economy rebounds driven by exports, earthquake rebuilding in Canterbury, and the 2011 Rugby World Cup.

In terms of gaining exposure to the New Zealand economy, you can play the volatile NZD exchange rate, or invest in one of the New Zealand ETFs e.g. iShares MSCI New Zealand Invest (ENZL), Wisdom Tree Dreyfus New Zealand Dollar (BNZ), or through one of the ETFs listed on the New Zealand Stock Exchange (NZX.nz) such as the top 50 stocks fund (FNZ.nz); or of course directly into stocks listed on the NZX or dual listed on the ASX.

Sources
Econ Grapher Analytics www.econgrapher.com
Reserve Bank of New Zealand www.rbnz.govt.nz
Statistics New Zealand www.stats.govt.nz

Article Source: http://www.econgrapher.com/16sep-rbnz.html

Top 5 Economics Graphs of the Week - 7 August 2010

This week we look at the faltering PMI stats from China, and a relatively stable but mixed PMI result from the US for July. We then review the monetary policy decisions this week from the RBA, BoE, and ECB, then we analyze the employment reports from the US and New Zealand.

1. China PMI

The Chinese PMI indexes both fell in the July reading, with the official CFLP index falling to 51.2 from 52.1, and the HSBC index dipping below 50 for the first time since March 2009, at 49.4 vs 50.4 in June. The PMI numbers are showing an easing of industrial activity in China, but the numbers are still above the low point reached late 2008 to early 2009. The July industrial production result is likely to come in lower again next week when the monthly data release comes out (which also includes CPI, fixed asset investment, PPI, and retail sales). The biggest question around the PMI result is whether or not it's temporary; is it a seasonal movement? is it the result of artificial tightening moves? or is it a more fundamentally driven decline? Next week will surely bring extra pieces to the puzzle.

2. US PMI
In the US the PMI results also softened slightly, but the standout was the non-manufacturing PMI which came in at 54.3 vs 53.8 in the previous month, driven by new orders, and new export orders. The manufacturing PMI on the other hand dropped to 55.5 from 56.2 with the largest falls in new orders and production. The results are symptomatic of where the US economy is tracking; signs of slowing down, but still riding relatively high from the bounce-back - but remember the bounce-back was brought on by the stimulus measures and the inventory cycle. What we're seeing now is the part where the engine is spinning and the clutch is about to engage - but will it stall? the risks are certainly there.

3. Monetary Policy review
This week we saw monetary policy decisions from Australia, Europe, and the UK. The Reserve Bank of Australia held again at 4.50%, which will probably be the new neutral for now; the RBA is basically taking a wait and see approach at this point to gauge how the recovery is tracking in Australia and around the world. The European Central Bank also held steady at the record low 1.00% which was no surprise, likewise the Bank of England help its key rate at 0.50% and held the Asset Purchase Program unchanged at GBP 200 billion. The ECB and BoE are both unlikely to make any substantive tightening moves before the year is out, but of course this depends on how the recovery at home and abroad continues (or otherwise).

4. New Zealand unemployment
Over in New Zealand the quarterly employment report was released for Q2 2010, with the progress made in Q1 almost all lost as the unemployment rate bounced back to 6.8% from 6% in Q1 (but below the high of 7%). Within the results the number of unemployed persons rose 13.9% to 159k, and the number not in the labour force grew 0.6% to 1,094k, while the number of persons employed dropped -0.3% to 2,170k. But within the employment numbers the number of full time employees increased 3k, while the number of part time employees dropped by 7k; which is a relatively positive sign from the perspective that during a recovery its better to see full time jobs growing rather than part-time jobs. The employment situation will likely improve during the second quarter as the economy limps forward on its recovery.

5. US nonfarm payrolls
US nonfarm payrolls fell -131k in July (vs consensus -70k), after falling an adjusted -221k in June. In the detail, 202 government jobs were cut (with 143k being census related), however private payrolls increased by 71k (83k in June). Also in the detail, average hourly earnings increased 0.2% and the average work week increased to 34.2 hours from 34.1 in June. So there are some positives in the payrolls employment report, it is a positive signs to see both hours and earnings on the rise, as well as some growth in the private sector. Of course there's a long way to go to recover the losses made during the crisis, but data like this at least slightly improve the mixed picture of where the US economy is headed.

Summary

So we had China's PMI falling, with the HSBC index tracking into the sub-50 territory, but it remains to be seen whether this is the start of a significant slowdown, or just a temporary pullback. It's likely to be the latter unless any catalysts trigger a more systemic slowdown.

In the US, the PMI's are sending mixed signals, with the non-manufacturing sector improving on the back of increased orders, while the manufacturing sector is slowing as orders fall. Taken together with the employment results it shows a picture of an economy that is muddling its way along out of the recession, with the training wheels of stimulus and the inventory cycle close to falling off...

On the monetary policy front, the theme is simply wait and see. More and more countries are seeing more stop-start activity, with the mixed signals, and slow progress; as we saw with New Zealand's employment figures. More and more the course of domestic monetary policy is looking outwards to the course of the global economy, the easy part of the recovery is officially over - now comes the hard part!

Sources
1. CFLP www.chinawuliu.com.cn & Markit/HSBC www.markiteconomics.com & Yahoo Finance finance.yahoo.com
2. US Institute for Supply Management www.ism.ws
3. Reserve Bank of Australia www.rba.gov.au & European Central Bank www.ecb.int & Bank of England www.bankofengland.co.uk
4. Statistics New Zealand www.stats.govt.nz
5. Bureau of Labour Statistics www.bls.gov

Article Source: http://www.econgrapher.com/top5graphs7aug.html

RBNZ raises OCR to 3.00%, signals go-slow

The RBNZ (Reserve Bank of New Zealand) increased the official cash rate at its July meeting 25bps to 3.00%, and signaled that further rate rises will likely be on the go-slow. It noted that policy normalization may be more moderate going forward, but of course with the caveat of monitoring the economic environment and financial market developments:

"Given this, some further removal of monetary policy stimulus is appropriate at this stage. Even after today’s move, the level of the OCR is still very supportive of economic activity. The pace and extent of further OCR increases is likely to be more moderate than was projected in the June Statement. Our policy assessment will be continually reviewed in light of economic and financial market developments."

Indeed, this is probably the correct approach as the policy rate is still well below average, and is certainly in the stimulus zone, but against a backdrop of still subdued economic activity (recovery yes, but below trend, yes too). The New Zealand economy is in recovery mode and is growing, but is still dealing with the damage from the global financial crisis and the deep recession; as well as a spate of finance company collapses, beginning prior to the crisis and still continuing (the banking system remains firmly intact though, as none of the finance companies were particularly systemically important - but a lot of investors got burned).

"In New Zealand, domestic demand is subdued. Households are cautious, with retail spending growing only modestly, housing turnover in decline and household credit growth weak. While this caution has been evident for some time, the recent slowing in net immigration will act to further dampen consumer spending. Business investment remains very low, with corporate lending continuing to be subdued."

On the inflation front though, the headline inflation rate is widely expected to temporarily spike above 3% as government related price changes e.g. GST come into force. However the RBNZ does not expect this to translated through into core inflation, but there is the risk that firms and households raise their inflation expectations as a result, and that could lead to more genuine inflation. So the outlook seems fairly predictable for New Zealand, the main wild-cards come from abroad, both upside and downside.

Sources
Econ Grapher Analytics www.econgrapher.com
Statistics New Zealand www.stats.govt.nz
Reserve Bank of New Zealand www.rbnz.govt.nz

Article Source: http://www.econgrapher.com/29jul-rbnz.html

New Zealand Economy: Onwards, and Slightly Upwards

New Zealand recorded its 4th quarter of positive GDP growth with 0.6% q/q for the March quarter of 2010. This matched consensus estimates, but was down slightly from the 0.9% recorded in the December quarter of last year; reflecting the somewhat subdued economic recovery, following one of the worst recessions in decades. On a year-over-year basis, growth accelerated to 1.9% from 0.5% in the previous quarter (rebounding from -3.1% in the March quarter of 2009).


The result shows the recovery (which follows a 5 quarter recession) becoming more entrenched, but some sectors are doing better than others. On a quarterly basis the winners were: Fishing, forestry, and mining - up 3.2%, Manufacturing - up 1.6%, and Wholesale trade - up 1.4%. The losers were: Electricity, gas, and water - down -2.2%, Retail, accommodation and restaurants - down -0.8%, and Government administration and defense - down -0.6%. On an annual basis construction continues to suffer, down -5.4%, while cutbacks on spending has put government administration and defense down -1.0%. The standout was fishing, forestry, and mining - up 10.4%, and manufacturing - up 4.3%.

The data follows the release of the current account balance yesterday. The data showed New Zealand holding a current account deficit to GDP ratio of -2.4%; the lowest in more than a decade. The key drivers were slightly improved GDP position, and more notably cyclical improvements in the current account deficit (i.e. lower investment earnings going offshore due to lower corporate profits, and a lower trade deficit (now a surplus!) due to falling imports driven by a drop in demand; but also by reasonably strong export performance), assisted by one-offs related to bank structured finance tax court cases. As previously noted, the likely outcome is for a return to larger current account deficits later this year as the cyclical factors begin to unwind.


So the key takeaway is that the New Zealand economy is in recovery mode; both in the traditional sense of the word, and in somewhat of a healing way, as some of the old bad habits of high spending, low saving, and over-investment in property come home to roost. The recovery will likely persist, but growth wont return to the sorts of levels seen before the crisis for some time yet, as consumers still need to undergo a period of de-leveraging, and getting the savings rate back into the black (from deep negatives).

So the path of monetary policy has also begun to turn, with the Reserve Bank of New Zealand increasing the OCR by 25bps to 2.75% in its June meeting. The outlook is for probably another 50-100bps this year, but due to the sluggish nature of the recovery the new neutral is probably going to be lower. But overall for the New Zealand economy the message is; onwards, and slightly upwards.

Sources
Econ Grapher Analytics www.econgrapher.com
Statistics New Zealand www.stats.govt.nz

Article Source: http://www.econgrapher.com/24jun-nzgdp.html

New Zealand Labour Market Turns a Sharp Corner

New Zealand today released its employment data (the Household Labour Force Survey), showing a marked reduction in the unemployment rate from a revised 7.1% in Q4 2009 down to 6% in Q1 2010. Consensus estimates were for no change at the previously announced 7.3% level. And as we conclude in the following analysis, the improvement was for all the right reasons...


As you can see in the chart above, the result is driven by a very strong quarter of jobs growth by historical standards, it also follows some 4 quarters of negative or nil growth. That's one part of the "right reasons" for the turnaround in the unemployment rate, the other part is in the chart below. You can see that not only was the growth in full time jobs one of the highest on record, but it coincided with a decline in part-time jobs (i.e. this indicates a switch from temp/part-time to full time), so this is genuine employment growth, in a genuinely strong labour market.

Much of the jobs growth came from the productive sector, with the Manufacturing sector leading jobs growth (9.2k), while other similar sectors also improved e.g. Construction (2.1k), Wholesale trade (4.1k), and Agriculture (1.2k). The result sent the NZD up about 100 bps against the USD. The New Zealand dollar has climbed almost 30% against the USD over the past year, while the main stock index; the NZSX 50 is up about 12%. The result came shortly after inflation was revealed to have grown 2% in the same quarter.


So now onto the interesting bit; what does this mean? First of all it means, unless there's a major meltdown in Europe, the case for an interest rate rise in New Zealand is growing even stronger. It's almost a certainty now that the RBNZ will raise the OCR in June. But in terms of the wider economy and broader implications, it points to a reasonably robust recovery. Jobs growth is needed to facilitate growth in spending, saving, and asset prices. So feeding this into the economic outlook for New Zealand paints a reasonably promising picture, but it is still early days, and there's still a lot of hard work to be done to get back to trend.


Things to watch for in New Zealand:

• May 20 - Budget announcement (including tax reforms, which the government has signalled may include rises in the Goods and Services tax, lowering of personal income tax rates, and tightening up of investment property tax loopholes).
• June 10 - RBNZ Monetary Policy Statement (which will likely include increasing the OCR 25bps to 2.75%).

Sources:
Econ Grapher Analytics www.econgrapher.com
Statistics New Zealand www.stats.govt.nz

Article Source: http://www.econgrapher.com/6may-nzjobsmarket.html

RBNZ Keeps OCR at 2.5%

The RBNZ (Reserve Bank of New Zealand) held its key interest rate, the OCR, unchanged at a record low 2.50% but signalled that a start on the path to neutral monetary policy is imminent:

“As previously indicated, we expect to begin removing policy stimulus over the coming months, provided the economy continues to evolve as projected."

“The increased wedge between the OCR and lending rates, as well as a steeply positive-sloped interest rate curve, is expected to make OCR increases more effective than in the past. Accordingly, these factors should reduce the extent to which the OCR will need to be increased relative to previous cycles.”

On that note, it may well be that the new "neutral policy rate" i.e. the rate at which the OCR is neither expansionary or contractionary, ends up lower than usual - as alluded to in the last paragraph of the announcement.


The RBNZ noted in their statement, as I have previously also noted, that the New Zealand economy is on the path to recovery, but that growth is set to remain subdued in the near term due to the depth of the recession, increase in unemployment, and trend for deleveraging:

“Notwithstanding the impact of stronger than expected export earnings, New Zealand households remain cautious, with the housing market and household credit growth subdued. Similarly, business spending is weak and firms continue to reduce debt"

“On balance, we continue to expect the New Zealand economy to recover in line with or slightly faster than our March Statement projection. Annual CPI inflation, which has been close to 2 percent for the past year, is expected to track within the target range over the medium term."

So New Zealand has turned the corner out of one of its worst recessions on record, in part aided by a recovery in exports driven by a strong recovery in the Asian economies, and a rebound in commodity prices; particularly the softs like milk prices.


In terms of the outlook it seems almost a certainty that the RBNZ will pull the trigger on the first increase in June (coinciding with the Monetary Policy Statement - a more comprehensive overview of monetary policy and the economy). A move in June is probably the right thing to do, the longer the RBNZ leaves an increase, the higher those increases will need to be. Australia left the recession before New Zealand did, and it set a good example for New Zealand to follow. Overall the outlook for the New Zealand economy is, notwithstanding the various domestic and global risks, a continued - yet subdued - economic recovery.

Sources
Econ Grapher Analytics www.econgrapher.com
Reserve Bank of New Zealand www.rbnz.govt.nz

Article Source: http://www.econgrapher.com/29apr-rbnzreview.html

New Zealand Inflation Snapshot

New Zealand released its inflation figures for the March quarter showing an apparent bottoming out of inflation as the economy recovers from a recession of 5 negative GDP growth quarters. As GDP growth has now turned positive, monetary conditions remain loose, and spending is tentatively recovering inflation is likely to at least be under-pinned if not increases slightly.


Into the detail; the main inflation figure was 2% year over year, on a quarterly basis it was up 0.4% since December, below consensus estimates for 0.6% (compares to 0.3% in March 09, and -0.2% in December). Looking through to the "tradeables" and "non-tradeables", annual tradeables inflation increased to 2% from 1.5% in December, while non-tradebles slowed to 2.1% from 2.3%. So basically non-tradeables are slowing their decline and tradeables are continuing to increase.


In terms of the inflation outlook however, it is going to be very much effected by artificial factors such as government policy e.g. ACC levy increases, the emissions trading scheme, and possibly the GST increase when it comes. That said there continues to exist spare capacity in the economy, and the unemployment rate is still 7.3% (compared to a low of 3.5% in December 2007). In addition housing market inflation isn't likely to make a significant contribution in the near term.

Thus the figures are unlikely to cause huge concern to the RBNZ in terms of monetary policy. However there is the risk that the artificial inflation gets passed on into inflationary expectations and expressed as real inflation. The next key data point out of New Zealand will be the (albeit lagging indicator) HLFS [Household Labour Force Survey] on the 29th of April which will provide an update on the employment situation.

Sources
Econ Grapher Analytics www.econgrapher.com
Statistics New Zealand www.stats.govt.nz
Reserve Bank of New Zealand www.rbnz.govt.nz

Article source: http://www.econgrapher.com/21apr-nzinflation.html

New Zealand: Retail Sales and Home Loan Approvals

New Zealand released its retail sales figures today, revealing soft figures; affirming suspicions that the recovery is still weak. Sales declined -0.6% from January (where sales rose 0.7%), disappointing those predicting a 0.2% rise. The NZD sold-off sharply against the USD following the release, dropping about 50 bps before returning to pre-announcement levels at around 0.71 (NZDUSD).


The RBNZ weekly home loan approvals data was also out on Wednesday, and showed a continued drop-off in the pace of approvals. The chart below shows the number of loan approvals dropping off on a rolling annual basis and a year on year percent change basis.


Even on a value approved basis home loan approvals are tracking down sharply. Part of this is the realisation that while the recovery is here, it's not yet strong. People are aware of the risks and are opting to spend less and use less debt in preference of building up safety reserves (though capacity to service new loans may also have dropped).


But another aspect weighing on the housing market in New Zealand is the regulatory uncertainty around taxation of investment property. New Zealand is set to close certain loopholes available to property investors such as claiming depreciation losses against personal income. Along with plans to drop the personal tax rate and increase goods and services taxes the moves may well encourage more financial asset investing over property investing.

However there are positive drivers of the property sector at present such as positive net migration, and presently low interest rates (but don't expect this to last), and a wild card will be KiwiSaver first home buyer withdrawals. New Zealanders are allowed to withdraw their contributions from KiwiSaver on the 3rd anniversary of their first contribution to purchase their first home (as well as receiving a subsidy from Housing NZ). Thus this may see an increase in activity around the lower end of the housing market towards the end of 2010 and into 2011 as more individuals qualify.

Overall the outlook for the New Zealand economy is still for a reasonably fragile recovery, but a recovery nonetheless. But given continued weakness in spending and continued deleveraging New Zealand will not be able to rely on a consumer lead recovery. The best way out would be to lift exports and business investment. In terms of the housing market the economic environment is reasonably balanced, but there does not seem to be any strong drivers of prices rises present. The most likely scenario is for further sideways movement in price; probably in track with inflation; but of course regional drivers will see some areas outperform others.

Sources
Econ Grapher Analytics www.econgrapher.com
Reserve Bank of New Zealand www.rbnz.govt.nz
Statistics NZ www.stats.govt.nz
Real Estate Institute of NZ www.reinz.co.nz

Article Source: http://www.econgrapher.com/14apr-nzupdate.html

New Zealand Economy

The New Zealand economic recovery strengthened in the fourth quarter of 2009; growing 0.8% compared to the September quarter. The result matched consensus and beat the previous result of a revised 0.3%, marking the 3rd quarter of positive growth and placing GDP into positive territory on an year on year basis at 0.4%.


Industries that gained the most in the quarter were Manufacturing (0.5), Wholesale trade (0.2), Electricity, gas and water (0.1), Retail, accommodation and restaurants (0.1), and Government administration and defence (0.1). Industries that detracted were Personal and community services (-0.1), and Fishing, forestry and mining (-0.1).

On a sector basis, much of the growth came from change in inventories (2.3), followed by Private and Government final consumption expenditure, and residential building (respectively: 0.5, 0.2, 0.2). While sectors that detracted from growth were Imports (-1.7), Exports (-0.3), and other fixed asset capital formation (-0.4).

The outlook for the New Zealand economy is reasonably strong with largely balanced risks to the upside and downside. It's likely that the recovery will continue to strengthen but that growth will soon settle into a more subdued pace than previous years. There's also little sign that people are changing their ways i.e. no structural change, rather a cyclical recovery.

There are two key areas to watch for New Zealand in the medium term: Monetary policy, and Fiscal policy. In terms of monetary policy the RBNZ has given guidance to the market that it will raise the official cash rate from 2.5% in the middle of the year (i.e. June); the relatively strong GDP result will only add to the case.

On the Fiscal policy front, the budget is due for release on the 20th of May and will likely layout changes in tax e.g. increasing the GST sales tax to 15% from 12.5%, lowering personal and investment tax rates, and closing property investment loopholes. The government also has a range of initiatives stemming from a think tank (Capital Markets Development Taskforce) on capital market development that will support growth over the medium to long term.

Overall there is a lot of promise for the New Zealand economy over the medium to long term if the government gets it right on its strategy for growing capital markets and encouraging productive asset investment, and exports. Progress made will build on the strong foundation that the agriculture sector (and increasingly, the energy and resources sector) have provided.

Sources:
Statistics New Zealand www.stats.govt.nz
Econ Grapher Analytics www.econgrapher.com

Article Source: http://www.econgrapher.com/26mar-nzgdp.html

New Zealand Current Account Fall Reflects Stronger Earnings

New Zealand's current account data surprised some with the current account deficit for the year through December 2009 coming in at -NZ$5.47 billion versus consensus estimates of -NZ$3.33 billion, and the September quarter figure of -NZ$5.9 billion. The comparable figure in December 2008 was -NZ$15.97 billion.

Seasonally adjusted the current account balance during the December quarter was -NZ$3.11 billion, versus the small positive of NZ$0.04 billion in the September quarter of 2009.


The Current account deficit as a percentage of GDP also improved in December 2009 to a 8 year low of -2.9%, compared to consensus estimates for -2% and September's -3.2%; and a marked reduction from -8.7% in December 2008.

However this improvement will only be short lived as it is entirely driven by cyclical forces and one-off events. The current account deficit will undoubtedly widen again through 2010 and will likely return to levels greater than -5% as a percentage of GDP by the end of 2010.


The positive balance in September was partially made possible by large one-off tax provisions by the banks after a couple of large Australian owned banks lost court cases brought by the New Zealand Inland Revenue Department over structured finance transactions and tax avoidance.

Cyclical forces also played a critical role; New Zealand has a net international investment position of -90% as a percentage of GDP, thus if company earnings fall then so to will current account outflows... this is a bad way to improve the current account deficit.

The current account balance was also influenced by the goods balance which saw a marked turnaround due to imports falling faster than exports. New Zealand generally tends to have fairly stable exports; dominated by agriculture i.e. the volumes are fairly stable, but what has the most influence is soft commodity prices. Thus this was driven mostly by falling demand for imports.

Already the balance on investment income (-NZ$3.39billion) has returned to levels seen prior to the crisis driven by performance of direct investment (e.g. company subsidiaries in New Zealand). Another interesting point in the release was that the amount reinvested by international investors in direct investments in New Zealand grew to a record NZ$1.5 billion.

So to sum up, the New Zealand current account deficit improved, but primarily due to cyclical forces; the deficit will widen again through 2010 as the New Zealand economy recovers. The only thing that will structurally improve it is: less spending on imports, more exports, and more saving (yes KiwiSaver will help) from both the private and public sectors.

Sources:
Statistics New Zealand www.stats.govt.nz
Econ Grapher Analytics www.econgrapher.com

Article Source: http://www.econgrapher.com/26mar-nzcurrentac.html

Econ Grapher - Economic Calendar

Here's the Economic Calendar for the week commencing 22 March 2010. There's a few key data points due out of New Zealand (GDP, current account, consumer confidence), which will be interesting as an update on that economy; forecasts are for a 3rd quarter of positive growth, and probably about 0.6%. There's also some CPI stats from the UK and Japan, which may be interesting given recent comments by a Bank of England official on the threat of inflation, and Japan on the other hand with its long standing battle against deflation. And then of course there's another revision to US Q4 GDP on Friday.

Week starting Monday, 22nd March, 2010:

Day	Time (GMT)	Code	Event/Release
Monday	15:00	EUR	Consumer Confidence
Tuesday	9:30	GBP	Consumer Price Index
Tuesday	21:45	NZD	Current Account Balance
Tuesday	10:00	USD	Existing Home Sales
Wednesday	12:30	USD	US Durable Goods Orders
Wednesday	21:45	NZD	Gross Domestic Product
Wednesday		NZD	Consumer Confidence
Wednesday	9:00	EUR	Purchasing Manager Index
Thursday	23:30	JPY	Consumer Price Index
Thursday	5:30	GBP	Retail Sales
Thursday	8:30	USD	Unemployment Claims
Friday	12:30	USD	Gross Domestic Product

Stay tuned for updates during the week...

Sources
DailyFX www.dailyfx.com/calendar
Forex Pros www.forexpros.com/economic-calendar/
Forex Factory www.forexfactory.com/calendar.php
Bloomberg www.bloomberg.com
+various statistics websites and central bank websites for verification

Article Source: http://www.econgrapher.com/22mar-calendar.html

New Zealand Retail Sales Driven Up by Autos

New Zealand revealed stronger retail sales figures for the month of January. Headline retail sales rose 0.8% from December on a seasonally adjusted basis, beating consensus estimates for 0.5%, and better than a revised -0.4% in December. At NZ$5.54billion the result is up 3.6% year over year. Core retail sales (excluding vehicle related industries) was a little sluggish by comparison, up 0.3% month on month, and 1.6% year on year.


Drilling into the component industries, the top 3 performers were: Automotive fuel retailing 8%, Takeaway food retailing 9%, Motor vehicle retailing 10%. While the bottom 3 were: Personal and household goods hiring -14%, Liquor retailing -8%, and Fresh produce retailing -7%. As can be seen below, retail sales are dominated by the supermarkets category which tends to be relatively less cyclical due to purchases of necessities.


In terms of the absolute level of headline and core retail sales, the chart below shows the marked departure from the pre-recession trend, especially in the headline figures. Indeed this is reflective of the nature of the recovery that is underway in New Zealand; much improved, but subdued and sub-trend.


The outlook is for a continued pick up in retail sales as consumer confidence grows further and the unemployment rate starts to peak. Monetary policy and Fiscal policy conditions are also still relatively loose and stimulatory too, though the government has mentioned its intention to increase the goods and services sales tax. Yet the still weak figures did not give the RBNZ cause to lift the OCR from 2.50% on Thursday, but the numbers do support the general sentiment that a rate rise will come in June.

Sources
Statistics New Zealand www.stats.govt.nz Econ Grapher Analytics www.econgrapher.com

Article Source: http://www.econgrapher.com/13marnzretailsales.html