A positive economic shift

Roger J Kerr says we have an emerging economic and market environment starkly different to what the economic protagonists expected

Bonds

Roger J Kerr says we have an emerging economic and market environment starkly different to what the economic protagonists expected

12th Oct 15, 9:26am by Roger J Kerr

By Roger J Kerr

The local moneymarkets in their pricing of future interest rate levels will now start to reflect considerable scepticism as to whether 2.50% or 2.25% OCR levels are actually achievable.

The previously anticipated weaker economy (thus less upward pressure on inflation) from a dairy industry in trouble with low prices/incomes is already proving to be well wide of the mark.

Skyrocketing dairy prices and a weaker US dollar on global forex markets at this time was not what RBNZ and bank economists were factoring in to their economic prognosis for the last quarter of 2015.

They were forecasting the exact opposite!

Add in the stabilisation of international financial and financial markets over recent weeks as Chinese economic worries have also proven to be largely unfounded and we have an emerging economic and market environment starkly different to what the economic protagonists expected.

Local business and consumer confidence took a hammering over the June to August period as the doomsday merchants forecast economic woe from collapsing dairy prices and the Chinese economy melting down.

Neither has happened and in the meantime house prices continue to rise and mortgage interest rates continue to fall. It does not take too much to work out that both jobs and consumers' spending expectations are in pretty good shape in New Zealand and retailers can expect another boomer Xmas season.

What many consumers will not be so aware of is that the retailers’ FX hedging at higher NZD/USD levels on imported goods has all but run out, therefore sizable price increases are coming in January.

Looking ahead, the most challenging issue I can see in front of the NZ economy right now is unbelievable bureaucratic bungling at the Overseas Investment Office in Wellington causing extraordinary long delays in overseas buyers of NZ businesses gaining approval to settle their acquisitions.

The Government needs to act with some urgency on this latest civil service botch-up, otherwise our manufacturing and primary exporting companies wallow in ownership uncertainty instead of getting on with investing in productive capacity and jobs. Business and Government leaders need to step up to rectify this unnecessary situation so that we can all reap the economic benefits.

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Source: NZFMA

Roger J Kerr is a partner at PwC. 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

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12 Comments

by am_fek | 12th Oct 15, 10:06am 1444597604

"They were forecasting the exact opposite!"

We'll see - and it will be a good thing if the economy does pick up - but you have been consistently and hopelessly wrong for half a decade. Who exactly are you to talk? I had hoped you might have the class to tone it down given the sheer scale of your past errors but obviously that was foolish of me.

I can only offer some simple advice. Readers do remember your track record, so for your own sake at least consider having some restraint if and when you do manage to get a call right.

by Chris_J | 12th Oct 15, 11:06am 1444601194

Exactly. Predict up or down and you should be right half of the time. In the 6 and a half years I have glanced at Kerr's predictions, they actually appear no better than chance. (Like most commentators and market whizes. Of course if they were any good at predicting the future they wouldn't be enslaved in salaried positions, they would be rich and retired or at least semi retired in their 30s like some of us...)

by Zombie ponzi | 12th Oct 15, 10:13am 1444597984

"the most challenging issue I can see in front of the NZ economy right now is unbelievable bureaucratic bungling at the Overseas Investment Office" - Roger you're not looking hard enough.

I actually thought it was quite nice that we briefly slowed the rate we are selling New Zealand.

by Basel Brush III | 12th Oct 15, 10:55am 1444600541

....and flaky overseas housing property investors not to mention increasing unemployment.

by KH | 12th Oct 15, 11:35am 1444602932

Congratulations to the bureaucrats for slowing up aquisitions. Mind you they have always bungled their way along and paid more attention to maintaining their position than any output or quality. But the result is pleasing just the same.

by KH | 12th Oct 15, 11:37am 1444603045

Judging by the comments just above Roger J Kerr should be awarded the "Stopped Clock Award". Correct twice a day.

by Basel Brush III | 12th Oct 15, 11:57am 1444604227

It is the John Key syndrome.
Always react to the immediate itch (the polls) and try not to think too far past Thursday.

by steven | 13th Oct 15, 12:55pm 1444694158

he's been right twice?

by KH | 12th Oct 15, 11:41am 1444603313

But I have to give Roger his due. The economic outlook is certainly different from what most were saying last week. But then later this week we found ....... ??

by Keyser Söze | 12th Oct 15, 1:57pm 1444611427

Editors - you do realise that every fortnight - for the last 5 years - we have gotten an article from Roger Kerr stating that whilst recorded inflation has been weak to date that is backward looking and inflation will no doubt rear its ugly head so don't lower interest rates. It's almost comical.

Here is Roger Kerr's extended outlook and commentary for the next 5 years: whilst inflation has been weak prepare yourself as inflation is imminent and interest rates will rocket back up

by linklater01 | 13th Oct 15, 12:05pm 1444691115

I too have been following Roger Kerr's predictions for some time and while I accept his considerable knowledge of fixed interest markets,I think he must live in a parallel universe;one which he inhabits with Graeme Wheeler,who believes in the face of all the evidence to the contrary,that the 'neutral' rate for the OCR is above 4%.

by steven | 13th Oct 15, 12:49pm 1444693752

Yesterday's men. Welcome to the post peak oil world where lack of cheap energy stops the "growth for ever on a finite planet economic/financial model" they are wedded to.