NZ Economic Planning: NZ Pulling Out Of Its Economic Dive, But Where’s The Kicker?
October 30th, 2009
The NZ economy is regaining momentum, but only slowly, and there are still fears it could go bad again, very quickly. Indicators point to stronger growth in the second half of the year than forecast in the budget or by the Reserve Bank as recently as last month. Net migration has exceeded even optimistic forecasts boosting the housing market, where house prices have moved up 8% since the January lows. Credit conditions are improving, and the pipeline is starting to flow again. The rural sector is still variable: where the dairy industry was gloomy, it has perked up with Fonterra’s higher price signal, but the meat and wool sector, earlier looking for a better season, has been squeezed by the high dollar.
Fiscal policy, for so long expansionary, is likely to reverse to become contractionary. Trans-Tasman believes this means monetary policy shouldn’t be tightened, as some economists are suggesting. The RBNZ should not follow the example of the Reserve Bank of Australia in an early rise in interest rates. ANZ Bank economists warned this week financial markets are pre-empting the cycle so much the recovery itself could be at risk. The Govt sees the situation as finely balanced. It is heavily focused on unemployment, which is still rising.
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It is resisting calls for a “hairy-chested approach” to the economy, and believes the measured response it has taken to managing the economy through the recession to recovery has commanded wide support in the community. The high dollar, though it has had a grinding effect on the export sector, has increased consumers’ purchasing power (some say by as much as 20%). This could mean a relatively buoyant Xmas season for retailers.
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Duncan Cotterill