Economic outlook positive, both short and long-term

Roger J Kerr sees an economy humming and expects higher growth to be reflected in the GDP results and the RBNZ forecasts

11th Jun 13, 8:00am by Roger J Kerr

By Roger J Kerr

After returning home from a month travelling outside New Zealand, I am wondering whether I am observing the New Zealand economy at this juncture with a fresh and new perspective.

It is always useful to stand back and listen to what the rest of the world think about New Zealand.

Years ago travelling in Europe the popular question you received when they saw that you were a Kiwi was “Do you know Jonah Lomu” - the answer always being “Yeah sure, he is my cousin”. The only comment you got in China when they saw that you were form New Zealand is that they always try to buy NZ milk powder for their babies.

The opportunity and positive for the NZ economy as a supplier of protein to the growing urbanisation of China is massive.

Our economic future is underwritten by Chinese demand for what we produce in a more secure way than Australia’s, as the Chinese move on from the infrastructure build of the last 10 years to consumer demand and rising living standards in their enormous cities.

How well we package and sell our food exports is over to us, the insatiable Chinese demand will always be there.

That takes care of our long-term economic performance, however for the short/medium term outlook we will receive an update from the RBNZ this Thursday, and then next Thursday have confirmation that the economy expanded at a higher rate in the March quarter than what everyone expected with the GDP numbers.

Consensus forecasts for a 0.60% growth over the quarter appear far too low measured against the very strong ANZ Bank regional growth survey that came out a couple of weeks back.

It looks like we are back on to a annual growth rate for 2013 above 3.0% as the negative form the summer drought is not going to be as bad as first feared.

All other parts of the economy are humming right now; therefore there will something really amiss if the RBNZ’s prognosis is not more upbeat on the outlook than previous statements.

The currency has finally retracted due to Australian events; however that is positive for GDP growth in the NZ economy and coupled with the heat in the housing market the RBZ would be remise to ignore the elevated inflation risks that come with stronger economic growth.

Not that the OCR is going to be increased anytime soon, however the RBNZ tone should lift market pricing in the term swap interest rate markets.

The GDP figures will add to that next week.

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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 rogeradvice.com

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20 Comments

by Omnologo | 11th Jun 13, 9:36am 1370900169

Your position on our primary products makes a compelling case for not allowing the sale of ag land or processing factories to foreign investors.

by Ms de Meanour | 11th Jun 13, 12:15pm 1370909701

Surely that depends on the price the foreigners are prepared to pay. You are implying that any future income stream is worth more than any up-front cash payment. That's clearly not the case.

by KH | 11th Jun 13, 9:50am 1370901023

Exactly right Omnologo. No point in being very busy if you don't own your stuff. Be local.

by Stephen Hulme | 11th Jun 13, 11:24am 1370906655

KH & Omnologo - I am completely with you on this one - but those trying to re-arrange the deck chairs on the Titanic as it were have deemed our manufacturing future lies elsewhere - I suggest you both put your coffee cups down on the table before you read this.

The New Normal America: A Country Where Eating And Drinking Is The New Manufacturing

I think the ideology of such outcomes is well advanced locally.

by Kate | 11th Jun 13, 11:41am 1370907694

http://www.chicagotribune.com/news/politics/sns-rt-us-usa-agriculture-farm-billbre95915t-20130610,0,3345416.story

Land of the Free and the Home of the Brave.

They need a new anthem.

by KH | 11th Jun 13, 12:15pm 1370909754

Look at Germany. Much derided on these pages. But a great pride in their small (for them) family owned enterprises. Which are developed for generations and not sold off to the financial services sector. And where their manufacturing skill has been maintained, and not sent away. And where they own their stuff.

Seems a good policy to me. Works for them.

by Ms de Meanour | 11th Jun 13, 12:25pm 1370910326

So if you inherited a farm, the best thing would be for you to keep farming it?

Even if you hate cows and are actually a brilliantly talented IT designer with an excellent idea for a business start-up which could be hugely profitable, offering a valuable service to consumers and quality jobs to graduates - and could be funded from the sale of the farm to somebody who likes cows and has lots of ideas about how the farm could be better managed?

by KH | 11th Jun 13, 12:49pm 1370911793

MdM. You will never get it in a million years. But others should read this.

http://www.guardian.co.uk/world/2013/jun/01/germany-champion-europe

by steven | 11th Jun 13, 12:55pm 1370912103

yes long term for the family tree, keep owning it anyway. A mate of mine when we trained in the navy rented out his entire farm except for the farmhouse, one field and the ex-farm hand cottages (2 or 3). The cottages he leased to someone doing summer rentals. He's still in the MN, does a week on and a week off, runs horses on the field for the kids and wife and gets a decent income from rental. The renter of the farm land seems to get more tax relief than if he owned it....so he's happy as well.

regards

by Ms de Meanour | 11th Jun 13, 1:10pm 1370913000

But you cannot conclude from that example, that that is the best approach for everybody. It suits your friend and his family, given his particular circumstances and preferences. But it would not necessarily have suited somebody else with difference preferences, priorities, talents.

Of course we should look at what others do, and learn from it. But if we take the lesson that an approach which works here, for certain types of people, will work everywhere and for all people, then we are likely to be disappointed.

by steven | 11th Jun 13, 1:14pm 1370913292

Yeah sure, different strokes and I didnt say everyone should do it this way, but I think its one of the better ways. Personally I think getting and holding such an asset (or any good asset) within the family long term is a great inter-generational gift, just live off the interest/earnings per generation.

regards

by Happy123 | 11th Jun 13, 1:30pm 1370914222

Your both right. I know a guy had 200 hectare dry farm on Waiheke, struggled to keep his head above water for decades (consider the logistics of farming Waiheke in the 80s and 90s). Then the residential boom happened and he sold it in lifestyle blocks and made approx 35m on the deal, that money got reinvested and he, and many generations to come, live very comfortably (better for the individual). There could be another example where a farm makes a good 250k a year but it's in the middle of no-where, in that situation it might be better for the individual to keep the asset/income.

Its probably better for the country to keep the assets NZ owned, assuming the owner doesn't spend/invest the profits overseas.

by notaneconomist | 11th Jun 13, 2:01pm 1370916116

Happy123 - well said. Personally I don't really care who sells what to whom and where. The problems arise when Governments cannot afford the social promises they have made to residents and citizens and who is going to pay for those promises via the income tax system.

If assets are NZ owned this helps helps to resolve the income issues that Governments have. If NZers invest overseas and bring earnings back here for taxation purposes this also assists the Government income wise.

Globalisation has happened rather quickly and I don't think Governments have been adequately prepared in managing the taxation income issues that arise.

by Casual Observer | 11th Jun 13, 2:20pm 1370917253

research shows that family money rarely survives the transfer for long, with 70 percent evaporated by the end of the second generation. By the end of the third? Ninety percent

http://online.wsj.com/article/SB100014241278873246624045783346632711395….

by Stephen Hulme | 11th Jun 13, 2:52pm 1370919120

Look at Germany.

Germany is not plagued by a debt crisis, a claim that cannot be made for New Zealand.

by steven | 11th Jun 13, 12:08pm 1370909329

and a waiter lives on tips....and/or the minimum wage at McD's, so we have 366k of those. The ppl who will eat there however only grew 41k. 366/41 = 9 low paid jobs relying on one not so well paid these days job.

That seems.......um....sensible....really it does.........lots of positive growth there.....

regards

by waymad | 11th Jun 13, 11:32am 1370907176

Oh boy am I sick of Titanic references.

Titanic (she, of Iceberg fame) was one of three in the class.

The others had very different trajectories:

Brittanic - sunk in the Aegean after hitting a mine, in 1916

Olympic - carried right on carrying pax until 1935, broken up as too expensive to maintain during the First Great Depression.

My constant argument is that our funny old world is not a singular entity. It has lotsa bits, all different, some common threads, no single cause, effect, inevitability, or doom. Equating anything to a singular object (Titanic) is the most fundamental category error one can possibly make. It's like thinking of Europe, China, USA or Oz is a singular country. Bzzzt. Wrong....

What's to say you're not on Brittanic, it's 1916, and there's a funny object dead ahead?

What's to say you're not on Olympic, it's 1916, and there's lotsa life in the old girl yet?

How can you tell the difference?

Hint.

You cannae.

by steven | 11th Jun 13, 12:15pm 1370909745

Brilliantly prophetic on your part.

Brittanic, single hole that mine, run by Royal Navy (I assume) so more competant and aware as a hospital ship, I think it had modded bulkheads to fix the titanic's "design fault", still sank...get the drift?

Olympic, "too expensive to maintain during the first Great Depression" hence was replaced. I think our economy will be repalced in this second Greater Depression. The only thing I cant say is what the downsized one will be because that depends on starting to build the replacement some years before its needed. Either that or it will be a lifeboat job, which its looking like.

Our economy is monolithic in nature, its wedded to fossil fuels, its wedded to growth, hence yes sure there are different components, however they share the common foundation and weakness.

The only difference between the last two sisters was luck and some years...do you really want to gamble which one you are on rather than move off?

Of course if you are 60+ and amoral then Im sure the gamble of one or the other is worth a punt. If on the other hand you have children and grandchildren but are gambling on their behalf....not so good for them anyway.

regards

by waymad | 11th Jun 13, 8:16pm 1370938586

No such thing as a monolithic economy. Read Orlov: what Russia turned out to possess after the implosion was a plethora of pieces which functioned well: the private plots, the sub-cultures of the state institutions, the security apparatchiks (ask Putin....), the physical plant, and a host of skills which could be re-purposed.

It would, f'rinstance, be a simple matter to electrify transport in NZ once RTZ departs Tiwai.

Or dig up 1/10th of Southland, convert 'er to liquid fuels, and carry on as before in transport terms for 30 years ("Google Crown Minerals Lignite Resource Transport Fuels")

Or convert the railways back to steam (neighbour of mine built a marine steam rig with a little lathe and a drill mill...the Darfield Brickworks ran until very recently on a rocking-grate marine coal-fired boiler (for steam and drying) plus a marine Bellis & Morcom genset)

Point is, you just step back a little, mine a few dumps (precisely what is happening as we speak with earthquake debris just a few clicks from me), and re-learn a few skills. Not hard. Fun. We can get through.

No monoliths.

Lotsa people...sitting on chairs (Cheers, KH)

by KH | 11th Jun 13, 12:51pm 1370911883

it's not the ships waymad. It's the chairs. The chairs are the story.

Interesting about the others though.