I just recieved this and have read it in debth and thought it was important to share this with you. It will give you a greater understanding of whats happening to date and what may happen in the future economically.
Tony Alexander (Chief Economist, Bank of New Zealand) States
Sharemarkets have weakened around the world again over the past week with yet more deepening of concern for the global economy over 2009. Forecasters are falling over themselves to downgrade predictions for growth in all economies next year and there are significant downside risks to the New Zealand economy as a result of this. Commodity prices are falling away with Fonterra set to announce a reduction in its forecast payout. The outlook of tourism seems to be getting worse on a weekly basis and redundancies are already being announced in the sector. Given the extremely large number of small companies which operate in the tourism industry the 10% decline in visitor numbers we think will happen at a minimum over the coming year will produce a lot of layoffs that don’t hit the headlines as happened for the national air carrier this week.
The good news is that the Kiwi dollar continues to fall away and for unhedged exporters there is some insulation against the tsunami of weakness developing offshore. A falling Kiwi dollar is also happening at the same time as wholesale interest rates are dropping at an extremely rapid pace. The yield on 90 day bank bills is now around 5.8% compared with 6.4% last week and 7.2% three weeks ago! Over time falls in wholesale interest rates will take retail borrowing costs down to much lower levels but the pace of decline is going to remain heavily influenced by the credit crisis offshore which has pushed up wholesale funding costs.
Petrol prices also continue to decline and are now at their lowest levels since February last year.
Continued extremely high volatility in financial markets is likely over the next few months with downside risks to economic growth that will manifest themselves as New Zealand’s unemployment rate heading towards 6%.
In the Housing Section of the Report it states
It’s almost Christmas time and the housing market is going to go into its summer slowdown. But of course things are already very slow. We learnt last week that in October sales for the month were the worst for any October since our records started in 1988. Sales were 35% down from a year ago and half the level of October 2006.
Over the past year 60,924 dwellings have been sold around New Zealand. This is a 37% decrease from the year to October 2007 and the lowest annual number of sales since February 1992. The speed with which sales activity has fallen away in the past year is quite astounding and it reflects a great number of negative factors coming together at the same time.
The New Zealand economy went into recession in the first half of this year hit by drought, soaring food prices, a 40% rise in petrol prices between July 2007 and July this year, and a high exchange rate with the Kiwi dollar hitting its highest level in 27 years against the greenback in March above 82.0 cents. Finance companies have collapsed locking up the savings of tens of thousands of New Zealanders and withdrawing a source of easy credit for property developers. There was a drought and migration numbers have been running at half the 10 year average in the past year.
• Dwelling consent numbers to fall from 24,500 in the year to March 2008 to below 18,000 in the year to March 2009 (annual low point near 16,000 now likely) with a slight recovery to March 2010 then above average activity after that as attention turns to a shortage of dwellings late in 2009.
• Real estate sales falling from 77,130 in the year to April 2008 to between 55,000 and 65,000 come the end of this year then recovering back over 65,000 in calendar 2009 with further growth over 2010.
• House prices down 5%-10% by the end of 2008, flat over 2009, rising slightly over 2010.
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