Welcome to the August 11 issue of the BNZ Weekly Overview
The week has been a tumultuous one with the NZD falling at one point to 79.7 cents – making for a nine cent range over a
ten day period – sharemarkets here and overseas tanking, and forecasts for growth being slashed while interest rate rise
expectations have been pushed well out. In fact in the US no rate rises are now planned for at least two years according
to the Federal Reserve and that factor will tend to keep NZ long term borrowing costs low thus removing a lot of the
threat of sharply rising fixed interest rates here.
In fact, given the turmoil, one still has time (once again) to sit floating before moving to a fixed rate if that is
what one is planning this cycle. We expect NZ monetary policy will be tightened from December now so thinking about
fixing remains a worthwhile thing.
Is this a repeat of late-2008? No. The turmoil is all about downward revisions to growth expectations coming at exactly
the same time as the US credit rating cut and yet another round of debt wobbles in Europe. This is not a liquidity
crisis involving banks and businesses being unable to source funding. That was the deadly aspect of the 2008 event. But
complacency is not warranted because unlike back then there is now essentially no capacity in the major Western
economies to react to a worsened growth outlook by either easing fiscal policy, and with interest rates already so low
monetary policy effectiveness has hit Japanese levels in the United States and is close to it in the UK and to a lesser
Thankfully in New Zealand we have a number of key factors which will underpin our growth. They include the rebuilding of
Christchurch, slow feed-through of higher farm incomes in farm spending, good manufacturing sector growth supported by a
low exchange rate against Australia, and catch-up house building likely to kick-off soon in Auckland.
But ultimately the current turmoil is a reminder that world growth for the next few years will be mild and that for
ourselves China and wider Asia plus Australia are where we will increasingly derive our export income.
This week at www.tonyalexander.co.nz
you will find the weekly column plus results of our two monthly surveys.