Government ministers are adamant New Zealand’s economic fundamentals are solid, unemployment is at a record low, growth is faster than in Australia, and the surplus in the government accounts and low debt present further opportunities to strengthen the economy.
Yet, across the road from the Beehive, the view from the Reserve Bank seems very different.
In August the RBNZ slashed the official cash rate to 1% and talked of the prospect of another rate cut in November — on the basis a lower official cash rate is necessary to continue to meet its employment and inflation objectives.
The bank pointed to low business confidence and dampened business investment in 2018 which had remained weak in mid-2019. If sentiment remained low, growth might not increase, it said, an anticipated over the medium term.
The RBNZ also contends the risks for the NZ economy are so great that in in the interests of financial stability, core capital ratios for the country’s big trading banks have to be raised. Continue reading “Business confidence is bound to falter when govt and RBNZ have differing economic outlooks”
Government ministers are exulting over how the NZ economy is performing— and their own work in making it stronger.
David Clark, standing in for Grant Robertson in Parliament on Tuesday, rejoiced at how solid the “underlying fundamentals of the NZ economy are”. He said the government accounts for the June year showed how the coalition had achieved “strong financial results, while also making significant investments in well-being and infrastructure”.
Robertson, singing from the same songbook, celebrated NZ’s economic strength and resilience being recognised in a major update on the state of the global economy.
The IMF’s latest World Economic Outlook shows NZ’s growth forecasts have held steady at 2.5% in 2019, rising to 2.7% next year, against the 1.7% for the rest of the so-called “Advanced Economies”. Continue reading “Ministers enthuse at their economic prowess but polls suggest the public recognises a failure to tackle poverty”
NZ lamb export prices have hit their highest level since 1982. That mightn’t be good news if you are contemplating a roast leg of lamb for the barbecue this weekend.
But for NZ meat producers that, and the high prices being earned in markets like Japan for beef, suggest it’ll be a good season for NZ’s meat producers.
This is despite the global uncertainty stemming from trade wars particularly between China and the US, two of NZ’s main markets. The outbreak of swine fever in China is likely to sustain demand for other meat such as beef.
Continue reading “Commodity export prices provide some cheer, even for those downcast Fonterra farmer-suppliers”
Maybe a recession is looming, or maybe not and we are being misled
Finance-market investors are pessimistic: global stock markets fell around the world last week, prompting headlines such as Recession fears prompt selling in global stock markets.
Weak data from Germany and China on Wednesday helped fuel a rush for safe assets like bonds and gold, the BBC said in the report beneath that headline.
Bond market moves pointed to possible recessions in major economies.
Another BBC report, headed Are markets signalling that a recession is due?, examined the unusual phenomenon known in the jargon as an “inverted yield curve”.
This often comes before a recession or at least a significant slowdown in economic growth.
Continue reading “You could go with the pessimists and brace for a recession – or you could take comfort from Trumpian optimism”
So what, on reflection, are we to make of the Reserve Bank governor Adrian Orr last week slashing the official cash rate by half a percentage point to a record low of 1%?
After all, just the day before Orr made his historic move, Finance Minister Grant Robertson was delivering assurances to anyone who might be listening of the NZ economy’s “solid fundamentals” as he celebrated the unemployment rate falling to 3.9%.
Why then would investment guru Brian Gaynor label the OCR cut as a “bizarre decision”?
In his widely read column in the Saturday edition of the NZ Herald, Gaynor wrote:
“Populist politicians and central bank governors are obsessed with taking measures to avoid any form of economic slowdown. This approach, which has been strongly influenced by Trump’s pressure on the US Federal Reserve Board, is unorthodox, because expansions and slowdowns are an integral part of the business cycle. The weird 0.5% rate cut…means our Reserve Bank has more limited options if NZ is confronted by a serious recession”. Continue reading “Lopping the OCR might be a stroke of genius – or an Orr-ful monetary policy blunder”
Michael Reddell, on his Croaking Cassandra blog, has scolded the Reserve Bank Monetary Policy Committee about its prowess – or lack of it – in the communications department.
His concerns were raised by the committee’s decision – announced yesterday along with the latest Monetary Policy Statement – to lop the Official Cash Rate by 50 basis points to 1 per cent.
As Westpac commentators noted:
“This was a stunning decision – in the history of the OCR, the only times the OCR has been cut by 50bps or more have been after the 9/11 terrorist attack, during the GFC, and after the Christchurch earthquake. We are very surprised that the RBNZ decided to cut 50bps in today’s environment.”
Reddell was surprised, too, and is urging the RBNZ’s board to ask hard questions about just what went on before the announcement. Continue reading “RBNZ board is pressed to put many hard questions about surprise slashing of the OCR”
Finance Minister Grant Robertson insists the NZ economy has “solid fundamentals”, as Point of Order noted last week. He concedes there is uncertainty because of slowing global growth, Brexit, and trade wars but argues NZ’s economy is doing better than what he calls its international peers.
He reckons there are “many, many signs that things are getting better under this government”.
So what to make of the report this week from ANZ Bank economists titled “That Sinking Feeling”?
Bracing for this week’s release of Q2 labour market statistics and the RBNZ’s August Monetary Policy Statement, they look at some of the key developments the RBNZ will have to consider, “and it’s not looking pretty”. Continue reading “ANZ economic comment draws clouds over Robertson’s sunny outlook – but Stats NZ brings good job market news”