The Reserve Bank will drop the OCR to 2% by June; unemployment will rise to 7% this year; and by mid-2010 we should be coming out of the recession. Those were some predictions that Westpac senior economist Doug Steel made to a workshop at the Westpac Dairy Conference at Whareroa last week reports The Taranaki Daily. However he covered himself by prefacing his remarks: "Don't take too seriously any forecasts you hear, including mine, because the global situation is too volatile for any certainty." He says Dr Bollard had indicated in his March monetary policy statement he will not drop the official cash rate below 2.5 % in order to keep attracting overseas investment, "but we think the world economy will continue to weaken, NZ growth is likely to be weaker than Bollard thinks and this will force his hand."We think he will drop the official cash rate by 50 points on April 30 and by a further 50 points by June." "Unemployment "“ currently 4.1% of the labour force "“ we think will rise to 7% in 2009. But remember we will still have 93% employed. In the grander scheme of things NZ is looking a little better than many others, because we are a food producer. Highly manufactured goods are most sensitive to income reductions globally."For years we've been talking about the westernisation of diets, population growth and the emerging markets of China, India, Brazil and Russia driving commodity markets ever higher. These things haven't gone away and will continue to happen over the next 10 years. He says world commodity prices tend to follow global economic patterns fairly closely and in the case of dairy commodity prices, thinks they've probably bottomed out, but they won't recover quickly because the demand is not there. "However what is also happening is the supply side is contracting fast. The number of cows in the US is expected to reduce by 2.5% through this year. There will be a lot of cow culling, a lot less milk production and it will probably also happen elsewhere, so that could help our powder, butter and cheese prices from falling further.
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