Molesworth & Featherston (Weekend) – April 1 2006

Direct Link To This Week's Weekend Update Edition:
http://molesworthandfeatherston.info/pdf/MandF1Apr06L.pdf

Economy
Tide Turns

The signs are almost imperceptible but the tide has changed in analysts’ confidence about the economy.

The sharemarket has been surging, mainly because the Reserve Bank looks much more likely to begin the cycle of interest rate decreases later this year.

With the dollar at a pleasant 60 US cents and back to 85 cents Australian, the pressure is off the tradable sector. House prices are beginning to look more stable, which takes the pressure off the Reserve Bank’s biggest worry.

As we reported last weekend, things need to get better, though the finance minister is still pretty optimistic. He thinks we are probably through the bottom of the slow-down and we could see positive growth when figures for the first quarter of this year are produced.

Business confidence figures remain bleak. But the glimmer of an improvement was there in the National Bank's business outlook survey. A net 51 per cent of businesses expect conditions to worsen in the coming year. That's a very low level of confidence, but the good news is fewer businesses are gloomy than last month when a net 65 per cent said they thought business conditions would worsen this year.

“Every indicator within the survey has recorded an improvement,” the bank reported. “The improvement is widespread across retailers, manufacturing, agriculture, construction and the service sector.“

But if things are getting better, any recovery will not produce roaring growth rates, at least this year.

“Weak economic performance has been a key driver of the recent fall in the New Zealand dollar. The adjustment in the exchange rate will provide impetus to growth, and is already being reflected by firms’ export intentions increasing for three successive months,” the National Bank said.

The Bank’s economists and its business survey respondents are convinced interest rates will begin to come down this year, not next as the Reserve Bank has indicated.

ROLLING POLL

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