Roger J Kerr sees a fairly positive outlook for 2013 and claims the doomster forecasts for 2012 that didn't materialise reinforce reasons to be upbeat. Your view?

 By Roger J Kerr

Looking back on an uneventful year in the NZ interest rate markets leads to a summary along the following lines:

• Long term interest rates were held down at the record low levels by US 10-year Treasury Bonds remaining in the 1.5% to 1.7% region. Safe haven buying demand for Treasury bonds (due to European blow ups) over the first half of the year kept yields low and fiscal cliff concerns over the second half of the year maintained the tight range. Foreign buying interest in NZ Government bonds kept yields low, however that investor demand is now waning.

• A continuation of monetary stimulus in the US kept the US dollar weak on the global stage, thus a high NZD value maintained tradable goods deflation to offset persistent non-tradable inflation (lack of competition) in the NZ economy. Monetary conditions were much tighter in 2012 than what a 2.5% OCR would have suggested due to the high currency value. The exchange rate continues to play a major role in the NZ economy and thus interest rates were locked in at the record historical lows.

Despite several doomsday forecasts at the start of the year about the economy falling back into recession, the reality was +3% GDP annual growth over the first half of the year and a likely +2% annual growth clip over the second half.

Rising house prices helped retail demand and the so-called “manufacturing crisis” highlighted in September simply did not occur.

The economy on the whole was far more robust due to the wide-reaching benefits of a boomer agricultural production season.

Looking ahead to the likely interest rate movements through 2013 the following influences are likely to play a part:

• The US politicians will fudge a fiscal cliff/budget deficit “solution” by delaying most of the automatic tax hikes and spending cuts.Therefore, the US economy will not come to a grinding halt and stronger growth/higher inflation will be positive for equities and negative for bonds (i.e. treasury yields eventually higher).

• The timing of NZ short-term interest rate increases is almost entirely in the hands of what the NZ dollar currency value does. A sharp pull-back in the NZD/USD exchange rate to below 0.8000 would increase inflation and GDP growth forecasts and the markets would speculate about an earlier RBNZ OCR adjustment. If the NZD stays high over coming months inflation and GDP growth will be lower (exporters really struggling), therefore the OCR stays where it is for another year.

• The wildcard for the NZ economy away from Kiwi dollar movements is the climate. A dry summer will decrease agriculture production, thus GDP and rural incomes lower.

• The RBNZ are forecasting 2013 GDP growth between 2% and 3% with the TWI remaining above 70, which tells you that NZ export industries are adjusting to the reality of a higher currency value. The Christchurch rebuild adds to inflation risks on the upside.

All in all a fairly positive outlook with the widely expected global headwinds for this economy really being managed through and not making the negative impact in 2012 most had anticipated.

The doomsday merchants (who surprisingly command a fair amount of media space in NZ) will be struggling to come up with fresh headwinds for 2013.


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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

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I see a generally positive start to NZ in the first part of 2013 and even up to the middle of the year.  The local domestic economy seem to be going through a good phase again. The situations in Europe and the USA appear to be kicking the issues further down the road.  Even with Europe entering another recession next year and slow growth in the USA there is enough momentum in the NZ economy to go well in the first 6 months of the year.  The second six months of the year look more challenging in 2013 for NZ with the Chinese slow down effecting Australia and Australian banks and knock on effect on NZ.  When this starts to happen we should see both Australian and Kiwi dollars coming under pressure.    I suspect we will see some less Quantative easing  measures from the USA and a shift to currency manipulatuion/play in 2013 as alternative measures.  There are some positive signs from the USA but any unforseen event either in Europe or the Middle East could put the brakes on again.   Once we get through the next few years then hopefully the worst will be behind us.  Its up to the politicians and Governments to make the right decisions and not look to kich the isues further down the road for the next lot to clean up.  No more dragging but more fixing, and good fiscal discipline.

• A continuation of monetary stimulus in the US kept the US dollar weak on the global stage, thus a high NZD value maintained tradable goods deflation to offset persistent non-tradable inflation
tradeable goods deflation is not a good thing (lower exports to offset selling houses and rates increases). We need to find a better way of conataining domestic infaltion that does not ruin/deflate tradeable any further.

What a load of rubbish.  All we have seen for the last 4 years is kicking down the road a little longer, rinse and repeat.

The problems have not been solved and continue to accumilate both in depth and number.

If the councils, power companies and anyone else with a govn mandated monopoly continue their 5~6% annual rises and most ppl get a negligable pay rise then the producers must be suffering an equiv amount to get +0.8% inflation overall (which is also dropping it seems). Debt is cripplingly high with little private debt paid off, over-capacity everywhere and no real sign that will change anytime soon.  So 4 years of it so far, and another 4 quite possible.  Take Japan, 22(?) years of this stagnation/slow deflation, so many examples.

Yet you never mention such things....





I agree with your comments Steven. Kerr is typical of mainstream commentators who real off stats that only are possible due to extraordinary monetary intervention and unsustainable government deficits. Just like pre 2008 and he never saw the collapse that followed then coming either!

Yep, personally I think Roger lives in la la land.  Lets consider that in more petrol will go up, but ppl have no more money. Roger of course sold his business for a nice pile of $s so he'll be fine. Most other ppl  o the other hand will have to spend less on say food or say toys.  Toys like say TVs are imported, so they get more expensive, yet are the very thing to be sacrificed first, which means their price has to fall to make a sale.  The NET effect is what? well exporters will do better, importers worse, overall at best neutral.  There is no inflation in real fact ppl could be even less cash rich. To me its kind of devil or the deep blue sea. 

Until we see real wage rises no supplier/business/entity can put up prices unless they have a monopolistic position such as councils.