By Roger J Kerr
At the risk of sounding like a broken record, it just has to be repeated that it appears to me that the majority of economic forecasters are completely underestimating to likely GDP growth rates we will achieve in New Zealand this year.
The risk of the RBNZ underestimating stronger economic growth is a real one with monetary policy adjustments later in the year likely to be made too late and therefore too severe as they catch up.
In my humble (and sometimes mumbled!) opinion, the evidence continues to mount of GDP growth coming in well above current forecasts.
Consider the following recent developments to support my argument:
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The view from various local economists is that the debt/recession problems in Europe is a major 'headwind' for the NZ economy this year is just a load of "codswallop and hogwash". Our export trade with Europe is in the minor class and it is all food related that has not turned down. Where is the evidence that the recession in Europe is dragging the global economy (US and China) down? Latest US and Chinese economic data is stronger, not weaker.
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Agriculture production is through the roof with the fantastic weather conditions for grass growth over the last six months. Farmers are well past repaying debt to keep the bank manager happy, they are now spending and investing (i.e. applying fertiliser) their cash surpluses from my observation.
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Apparently the RBNZ are currently relaxed about the current inventory shortages and price increases in the Auckland residential property market (in terms of threats to medium term inflation). History tells us that the RBNZ wake up too late on property market up-cycles.
- Business investment is up, bank credit growth is on the up again, manufacturing is expanding again in line with global PMI improvements and there are early signs that the long-awaited recovery in residential property construction is finally commencing.
All adds up to +3% annual GDP growth over 2012.
There are only two headwinds in front of the NZ economy right now and both should have been risk managed in advance to reduce the negative impact.
The NZD/USD exchange rate above 0.8000 hurts exporter profitability and increased bank credit margins (bank cost of funds) from the European fiasco being passed through to household and corporate borrowers.
Outside these two irritations the economic fundamentals for New Zealand are in very good shape.
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* Roger J Kerr runs Asia Pacific Risk Management. 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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