By Roger J Kerr
An analysis of who picked the strong +1.6% expansion in the economy over the first six months of 2012 is a bit like my golf game – some pretty good and some very bad.
Or to put it another way in terms of a football score result, “The Markets” 2 v “The Economists” 0.
Both the March and June quarters’ growth results were substantially above prior consensus forecasts from the local fraternity of economists.
The rise in the NZ share market and the rise of the NZ dollar currency value this year have been consistently telling us for some months that the NZ economy is performing rather well.
In contrast, the consistent message from the economists has been that our economy was static, struggling, stuttering and stumbling. It still surprises me that the economists completely ignore what the markets are telling them.
The +0.6% increase in the June quarter, on top of the 1.0% expansion in the March quarter, has confirmed just how out of touch and wrong the pessimistic or flat outlook was.
A possible explanation is that the economists spend far too much time watching CNBC with its daily menu of debt and economic woes in Europe and perhaps not enough time talking to farmers in the heartland of the Waikato, Taranaki and Southland to get a handle on what is really going on in the NZ economy.
As expected, Europe’s problems have not dented our economic performance at all, households in NZ are spending again and are no longer constrained by deleveraging and the Christchurch rebuild is certainly well underway.
The positive and encouraging aspect of the June quarter’s GDP numbers was that the expansion in activity was not just agriculture production and construction; most other sectors were up as well.
We may have had some luck with the brilliant climatic condition for growing things; however like a round of golf, you take the lucky shot and let it boost your scorecard.
The implications of the strong GDP growth result on the future outlook for interest rates are that inflationary pressures are elevated, not reduced.
However, the most significant determinant of inflation levels going forward will be the exchange rate.
If the NZD stays above 0.8000 against the USD for a prolonged period over coming months, imported goods reduce in price and the economy looses momentum as exporters struggle. In this scenario interest rates cannot move up for 12 months.
Alternatively, if the NZD tanks to 0.7500 on the back of an RBA interest rate cut, the economy has better growth prospects and inflation increases as tradeable goods no longer reduce in price.
The outlook for short-term interest rates remains 100% dependent on NZD/USD exchange rate movements.
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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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8 Comments
So Roger believes and that's all that matters isn't it...no worries that the layoffs are picking up speed...nor that the crisis in the piigs zone is still building toward something very nasty...or that Ben the printer jumped into QEing without a chute and has reached terminal V.....splattt
Did Rog turn his Nelson eye toward China...and refuse to pick up on the aussie property implosion...which the IMF have said will not damage the oh so strong aussie banks..yeah sure.
Fair go Roger...leave the little red pills in the bottle and open the office door to the wider market and banking rorts...get a lung full of the stench and then tell us all is well.
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The NZ economy is tottering along the 'farm export or die' pathway but the thieving banks that 'own' most of the farmers are creaming the profits away. On the home front most Kiwi remain serfs to one or more of the parasitic banks...and those still in work are finding the combination of high taxation theft by central and local govt, along with the demands from the parasites for mortgage payments, just a little too much....they aint got nuffin left to waste on retailer stuff...
So in retailer land we see sales on top of sales to the point where the slashed price is now the norm and Kiwi peasant knows a better price is next month..the great spring clearance sale will lead into the pre xmas bonanza sale and then the post xmas happy hour sale..and on and on...diminishing turnover...shrinking tax theft..higher unemployment...surplus dreamtime...hello IMF goon squad, what brings you lot to Noddyland!!!!
"Heavily indebted countries like the UK face years more “painful” austerity to get their economies back on an even keel, International Monetary Fund managing director Christine Lagarde has warned."
What's that mean to Noddyland Roger....are we not heavily indebted!
It all comes down to whether the farm export tax grab grows enough to repay the billions Tweak is borrowing to buy another term in power...the great infrastructure investment for greater growth policy pathway to greater debt....yurk.
Here in Marlborough the potholes that swallowed money since 09 remain potholes today...the resurfaced roads need doing again...the narrow dangerous bridges remain narrow and dangerous.....the crap third world track between Blenheim and chch remains as it was....
Take that chart and move it back to march 06....I can see a long term rising trend there....sure dips in and out but it looks upwards for 6 years. So the way I read that is our economy is seen as stronger and better by others........but thats the past.
The Q is, will it continue.....
regards
As expected, Europe’s problems have not dented our economic performance at all, households in NZ are spending again and are no longer constrained by deleveraging and the Christchurch rebuild is certainly well underway.
Flabberghasting , is it not Roger..? when all the prognostications of number crunching economists ( I assume you mean Bernard) are contradicted by the Market reality.
How can this be so..? ..yet be so it does....i would guess ,that in the longer haul Roger ,,certain other realities i.e. indebtedness...rising unemployment.....the failure to address RBNZ policy caught in a pincer movement , fuelling housing bubbles while still coming to grips with Macroeconomics......will have a negative impact on the middle ,lower middle, class.......the underbelly Roger, when it starts to sag, it pulls the head down with it.
Oh it might all be just as you say , fabulous , if you are at the top end of the trading market with cheaply funded loot to toss around for what appears to be short term speculative puts.
I commend you for seeing past the underlying disease in our economy, and picking the cherries from the spring growth....., do remember the handcream, stops the chaff while your rubbing your hands together.......don't recommend it for burns though....cold water ! yep cold water..
P.S. I think you took a liberty with the Christchurch rebuild, hope Hugh doesn't see it, he'll go right off.
I agree and well said.
Funny thing Roger says he's risk managing yet all he see's is the upside and the possibility we may under estimate future inflation. Never discuses the risks or their impacts of the opposite....no balance. As a risk manager he should be looking at any possible risk, (within reason, you know aliens landing needed be worried about) assessing it and deciding a course of action to mitigate it. Now to ssimply say I this risk I know of but Im not going to weight it because its so unlikely it can be left is perfectly legit....but treating it like an elephant in the room he cant see is frankly amazing to me.......and he's (now) worth a lot of $s...
wierd..........
PS inflation if its going to happen will start to show a trend in core inflation that way, right now its falt or declining....in which case its not a worry for 6 to 12 months....unless aliens land...god knows what will happen then.
regards
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