January 22nd, 2009
Highlighting the good economic news to be uncovered if we dig deep enough seemed like a good idea for this first issue of the new year, until TVNZ reported Prime Minister John Key’s wish an end be put to doom-and-gloom talk about the economy. Now it will seem we are obsequiously doing his bidding. But we had found our nuggets (including the -0.5% December-quarter CPI) before Key emerged from his first Cabinet meeting of the year to say work is continuing on an economic package due for release on February 4 (it will focus on small and medium enterprises).
Better Good Than Bad. The Waikato Times last week acknowledged being hurt by the recession (advertising revenues down as much as 30% in some weeks) and having a vested interest in the economy doing well. It says doom-and-gloom headlines could exacerbate the souring of business and consumer sentiment and heighten prospects of the recession being deepened and prolonged; grim news would thus become a self-fulfilling prophesy. But things aren’t all bad. NZ lending criteria has not been tightened as drastically as elsewhere; petrol prices are far below levels which dragged the economy a few months ago; interest rates have fallen and will fall further; monetary policy easing overseas hasn’t led to major falls in mortgage rates overseas, but those rates are falling here. House prices have fallen too, and home loan affordability has improved.
Forecasters Unreliable. The Kiwi dollar’s fall is another positive development, providing a boost for exporters, although demand from overseas customers will be weakened as the recession spreads. While dairy prices are falling, sheep meat prices are holding up and the Meat Industry Association reports earnings from lamb cuts are much stronger than a year ago. Inflation figures this week recorded their sharpest fall in 10 years thanks essentially to plunging petrol prices. But the BNZ enthuses “the more we dig into the core CPI measures the weaker the inflation pulse becomes.” Pricing intentions in recent business surveys have faded, too. Moreover we will have more spending money from the tax cuts due within a few weeks. And the Govt is braced to further stimulate the economy fiscally with spending on public capital projects (Key says there are more potential projects than money). True, forecasters say the economic outlook for the next several months is sombre. But hey – they were wrong about 2008 this time a year ago.
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