ANZ economists say their preliminary estimate last week that the drought might knock 0.5 percent off this year's GDP is now looking light - with the economic consequences growing at an exponential rate.
"Such a dynamic will lean heavily against a picture that’s otherwise suggesting economic improvement," senior economist Mark Smith says in ANZ's weekly "market focus".
"Drought conditions continue to worsen – and the economic consequences are intensifying," Smith says.
Northland was the first region to be officially declared in drought nearly two weeks ago and it was joined last week by South Auckland (south of the Harbour Bridge), Waikato including Taupo, Bay of Plenty, Coromandel and Hawke's Bay.
"The speed at which the country is drying up suggests at least a 0.5% hit to GDP 2013 and we think the downstream consequences are now growing at an exponential rate," Smith says.
He says that ANZ analysis of the production impact of past drought episodes suggested a 0.5% to 1.0% hit to production-based GDP.
"One of the takeouts was that drought impacts tend to have a long-lasting impact on production, which eventually permeates throughout the wider economy."
Smith says there is no denying that there are signs of more general improvement (outside of the labour market at least) in the economy and he says ANZ economists were encouraged last week to note the pick-up in tax revenue as indicated in the seven-month government financial statements.
"Such real-time bellwethers are significant. People do not generally pay tax without a good reason," he says.
"We respect the improvement but still harbour some concerns over what growth could look like by mid-year. Mother Nature is a big swing variable for GDP; higher KiwiSaver contributions will bite into discretionary spending; the NZD seems stuck in the stratosphere; and we’d expect the threat of regulation to act as a suppressant to housing. A lot depends on the construction sector filling these voids."
Smith says such dynamics complicate the task facing the Reserve Bank on Thursday when it issues its latest Monetary Policy Statement and decides whether to make any adjustments to the Official Cash Rate.
The issues facing the central bank are "a well-shaken cocktail", smith says.
"The RBNZ face a tricky balancing act and we will be noting with great interest how the RBNZ characterise housing market strength, and how the worsening drought conditions have affected the outlook."
Smith says the ANZ's loan approvals indicator suggests a February pullback in housing sales volumes is likely.
"We note figures pointing to a February lift in properties on the market, but there is some way to go, with the nationwide inventory of saleable properties 5% lower than 12 months ago, with a larger reduction in inventory levels in Auckland and Canterbury. No wonder prices are continuing to firm."
27 Comments
I think the ANZ have hit the nail on the head. This is getting worse in an exponential way. The last few days of wind and searing temperatures, and a further week of this forecast as a minimum has seen areas that previously were hanging on turned to toast. My pocket is now a hollow reminder of what could have been.
I wish I could do anything to help struggling farmers, but I cannot.
I will pray for a week of perfect combination of rainfall, temp and wind to easy the drought, a strong bounce back in lamb price, and another 10% increase in dairy prices all happening in this month for our farmers.
Xingmo...you might do better to start a feed relief trust....give Fonterra a call to kick start the fund....maybe Theo's salary for year to warm up with and scale it down from there.
Oh and give those buggers at the banks a call, renowned for their benevolence, when not out enjoying golf in the extra sunlight hours.
stay well...n say one for me while your there, God knows I need it.
So is AGW the problem or the solution, last season we had heaps of rain and AGW was at fault, this season.......
As to production, drying off on Wednesday, only 2.5% behind last year but 25% down on where we should be. It's 2 months early and hopefully we can get the farm and cows back to where we want and not carry the problem into next season.
Certainly it will impact our total spending locally.
Come on. I've told you before what the solution is. Just like the USA goes after foreign outfits like BP, UBS, RBS, LIBOR, with massive fines, and slam North Korea and Iran with sanctions, New Zealand has to wake up and start getting aggressive with wrong-doers. In posts from several years ago I explained that Australia has all it's coal-fired power stations down the east-coast of Australia spewing out carbon dioxide that goes straight up and out over the Tasman Sea. It doesnt blow back inland. It ends up over New Zealand and then down into the Antarctic. You had visual evidence of this a couple of years ago when Central Australia had red-dust-storms that were depositing red-dust all over the NZ high-country glaciers in the SI and the Mountains in the NI. Now WA, CA, SA, and Victoria are in the middle of a heat-wave. Victoria is scheduled for 11 consecutive days of temperatures over 32 degrees celsius when it has never had more than 5 in a row, and never more than 1 in March .. ever .. the climate has changed, and the searing temperatures blow in from the Indain Ocean across the Kimberleys and the Pilbara, WA, across Central Australia out across the southern tablelands of NSW and VIC, across the Tasman, and hovers above NZ .. so NZ has to start charging australia to keep it's heat to itself, and particularly it's Co2 .. start holding your hand out for $2 or $3 billion a year compensation and that's in addition to my suggestion to charge the 4 big banks annual licence fees of $500 million each ..
Lets see, why pray are farmers so indebted? tax dodging? gambling on ever rising commodities prices? paid too much for farms?
If we drop the OCR maybe the gamblers will breath a sigh of relief and think they gambled well, only to gamble bigger and uh...better next time, and make a bigger hole. I'd suggest to a degree pain is the only way some ppl will learn...
Just Listen to Bruce Willis and his AGW denial....well maybe more frequent and worse droughts and floods will hammer something into him...or maybe not....maybe he just needs to be wiped out.
Banks have commented that what they lend money for starts to not be reflected in the OCR when the OCR gets "too low". So when its high they are happy to let the RB take the can..while they borrow cheap.
One has to wonder what RBNZ Governor Wheeler's previous employer, the World Bank, was up to credit wrapping NZD bank borrowing at interest rates below that demanded of NZ government issued debt. Inevitably the Japanese bought the unhedged Uridashi World Bank NZD notes at less than competitive interest rates via their Japanese brokers.
why is it that the government steps in and bails out the farmer. when if my business has a bad year they hound me through ird because my assessable income may be down. i would love it if i was afforded the same benefit guaranteeing cash flow if i were to have a poor year. smacks of a double standard and frankly i don't know why kiwis tolerate this. cant farmers insure against drought as surely this is a business risk?
No Kane we cant insure against drought. Exactly what is the bailing out that the govt is about to do? The ONLY thing that I know off is allow access to the tax income equalisation scheme.
Would it be wise for a govt and country dependent on farming for most of their income to not allow this....
So I sell up all my stock in feb and march due to a long dry period, kill the lot, early... . Not only are they killed light, but all that money is taxed at around 40% (yep, once you include acc at over 5%) So it then rains, the grass grows, I hop back in to buy and replace that stock in April/May .Balance date was 31 March. I am now down 40% of my equity on those bulls. 40% gone in tax. Problem being it was EQUITY, not INCOME. So should the govt treat it as income... no. And they dont, using the income equalisation scheme. Thats all they do for us. Allow us to manage our equity in stock rather than call it income.
In the last drought 16 farmers got income assistence. So you may as well say no one did. If someone in business was that badly off they would get winz assistence. You have to prove you have nothing. Zippo. If your urban business is rooted, you can go to winz and get help, you dont have to sell your house first. So why should it be different for a farmer or sharemilker. But it is, its tougher and we know this why.... cos only 16 people got help. Apparently thousands applied.
with today's volatile climate - all economists should be automatically clipping 0.5% off their annual GDP predictions as a matter of course.
When I predicted 2% GDP growth at the start of the year, rather than the consensus 3% plus, it was partly on the basis that I saw it being quite likely that there would be at least one major weather event - whether a storm / flood OR drought.
We had a ground frost last week in HB. In California daylight savings kicked in this morning. We dont get excema risk like you do. Some of my conservative farming freinds are starting to panic, so it must be really dry. We are going to get a tough winter as the pasture is open and dormant, it will take a few weeks just to go green.
Meanwhile the rent from my farm keeps coming in.
Haha good on you Andrew. Personally I have never seen it so bad. These very hot days, searing winds. And no rain anywhere really all over the north island. I farm pretty conservative, usually can kill to get the numbers down, but getting killing space is not happening. The economy will be in for a rough ride, generally stock numbers were in decline anyway, from the last bowt. I think it has been 4 years in the last 6 now. Even I am wondering about the current climate.
I used to bury silage, lasted years, just like carrying a bit of extra fat into winter. I agree, I sometimes think my father who started farming after the war had the best years. My grandfather talked of all the droughts. Its just part of life, good years follow bad etc., just got to remember the good years follow the bad ones,- eventually.
Hevi
You sure about that? Here's latest Stats NZ figures on visitor nights in January beging down from December, particularly for international nights. The high NZ dollar and weak demand from Europe/US/Japan is hitting international and domestic tourism pretty hard.
http://stats.govt.nz/browse_for_stats/industry_sectors/accommodation/Ac…
New Zealand guest nights (after removing seasonal variation) fell 4.1 percent in January 2013 compared with December 2012, Statistics New Zealand said today. This follows a rise of 3.0 percent in December.
“This month, we saw falls in domestic and international guest nights, as well as in guest nights for both main islands,” industry and labour statistics manager Blair Cardno said. "However, the long-term trend for national guest nights continues to rise."
Monthly movements for January 2013 (after removing seasonal variation) were:
- International guest nights fell 4.9 percent, and domestic guest nights fell 4.0 percent.
- South Island guest nights fell 5.6 percent, and North Island guest nights fell 3.1 percent.
- Guest nights fell for all accommodation types except backpacker accommodation.
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