Business confidence is bound to falter when govt and RBNZ have differing economic outlooks

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”

Ministers enthuse at their economic prowess but polls suggest the public recognises a failure to tackle poverty

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”

Commodity export prices provide some cheer, even for those downcast Fonterra farmer-suppliers

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”

You could go with the pessimists and brace for a recession – or you could take comfort from Trumpian optimism

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”

Lopping the OCR might be a stroke of genius – or an Orr-ful monetary policy blunder

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”

RBNZ board is pressed to put many hard questions about surprise slashing of the OCR

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”

ANZ economic comment draws clouds over Robertson’s sunny outlook – but Stats NZ brings good job market news

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”