Welcome to the first issue of the BNZ Weekly Overview for 2010
Last year was all about moving away from a Depression scenario and growth appearing here and overseas. Responding to the
absence of a dire outlook we saw some massive shifts in asset prices with medium to long term borrowing costs jumping
back up, risky currencies like the NZD soaring, commodity prices jumping, sharemarkets rocketing away, and house prices
recovering almost all of the ground earlier lost.
Late in the year, while there were welcome signs of consumer spending growth improving, while some other indicators
settled down a tad after a burst of activity– most notably in the housing market. Business employment and investment
intentions ended well ahead of where they were at the start of the year, but were/are still marginally below average and
therefore supportive of a good but not stellar outlook for the economy this year.
This year, assuming nothing major happens overseas, the major points of interest will be the government’s Budget in
mid-May and when and by how fast the Reserve Bank tightens monetary policy. The Budget could bring some very welcome tax
changes but it is guesswork at this stage exactly what they will be (though big hints will come out way before the
Budget). It seems clear something will be done to reduce the absurd situation of housing investments being subsidized by
taxpayers and this will cap price gains this year while at the same time aggravating the underlying accommodation
shortage as investors ease away from construction. The short versus long term price implications bear thinking about.
We expect the RB will start raising the cash rate in the middle of the year though before then fixed borrowing costs are
likely to drift slowly higher.
ENDS