Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: TobagoJack who wrote (21224)	1/13/2005 1:21:23 AM
From: mishedlo	Read Replies (1) of 116555

BNZ WEEKLY OVERVIEW [interesting report from NZ - evidence of housing and auto slowdown there as well. With a slowdown in the UK, OZ, and strong evidence of a slowdown in the US, it appears to me that housing globally has peaked. China is perhaps a wildcard. Interesting that the BNZ is forecasting a fall in the NZ$. Quite substantial, but part of that is on the belief that the US will keep tightening. Mish] Over the past month we have seen the release of data in New Zealand which essentially shows a strong economy but with a growing list of things slowing down. Over 2005 we expect the signs of slowing activity to intensify – though not necessarily to a strong degree. The main sources of downward pressure on the economy’s rate of growth will be • Falling net immigration • Above average interest rates with plenty of scope for fixed rates to rise 1% and floating rates possibly rising a wee bit more but more importantly probably not falling until right near the end of the year – a lot depends on what the exchange rate does. • A high exchange rate which although over-valued and producing a current account deficit blow-out could easily be near current levels come the end of the year- though by then we will be very close to a potentially large fall. • Further easing in the housing cycle with unusual strength last year probably due to the fierce fixed interest rates war. • Slower growth in our top 14 trading partners nearer 3.2% than this year’s 4.4%. • Some easing in commodity prices. • Capacity constraints – especially in the labour market. But operators should be on the look-out for business customers who may be adversely caught out by just a slight slowing in revenue growth. A lot of people have set up their businesses in the past six favourable years and do not know what a slowdown looks like – even the small one we are anticipating. Tourist Numbers Falling With regard to the tourist data contained in the monthly migration release we learned the following about November. In the month the seasonally adjusted number of foreign visitors was down by 2.2% from October. This followed a 0.5% fall the previous month and means that in the three months to November visitor numbers were down by 1% seasonally adjusted from the three months to August. This is a turnaround from quarterly growth of 2.4% three months earlier and means that in the November quarter visitor numbers were up just 4.2% from a year earlier. Current Account Deficit Blows Out The current account was in deficit for the September quarter came in at a much larger than expected $4.2b compared with $1.8b in the June quarter and $2.8b a year ago. The result took the annual deficit to $8.2b or 5.8% of gross domestic product from 4.8% in the year to June, 4.3% a year ago, and an average of 4.8% over the past ten years and 4.9% over the past 30 years. The deficit is therefore now above average though has in the past got a lot worse. It was last at 5.8% of GDP in mid-2000 and hit 6.7% earlier that year and 6.9% in 2000. A large deficit implies an over-valued currency but experience shows a country can run a large deficit for many years before one’s currency depreciates – so it would be unwise to use the deterioration in the current account as a tool for forecasting what the NZD will do in the coming 12 months. All it tells us is that our reliance on foreign funding is growing and if anything comes along to disturb the willingness of foreigners to finance Nzers’ over-spending then the currency will likely fall quite sharply. New Zealand’s economy as measured by gross domestic product grew by a slightly less than expected 0.6% during the September quarter after growing 0.8% in the June quarter. Growth in the year to September – the country’s official growth rate – was 4.6% from 4.4% the previous quarter, 3.7% a year earlier, and average growth over the past five years of 3.7%. In the quarter consumer spending rose by a strong 1.6% and was up a whopping 6.1% for the year – a very unsustainable rate of growth which retailers should take note of. Residential construction fell 7% in the quarter and was up 8.9% for the year – a correction perhaps starting. Investment in plant, machinery & equipment was up just 0.4% in the quarter but rose 22% for the year and further strong growth is likely as businesses take advantage of the high exchange rate and boost capital spending in place of labour which is increasingly not available. Exports fell 5.7% in the quarter and this is why the 0.6% overall quarterly result was on the weak side. The decline mainly reflects dairy export timing we believe and this factor bouncing back in the December quarter should add 0.3% to the Dec. quarter growth which we currently estimate at 0.9%. Exports were up 4.6% for the year while imports were up 15.2% and down 0.1% for the quarter. Consumer Spending Weakens Late In 2004 We released our monthly BNZ.MarketView Consumer Spending series which showed that on average over the past four years spending in December using BNZ debit and credit cards (adjusted for user number changes) has risen 27.5%. In 2004 the December gain was just 26.1% which suggests a weaker than normal month which Statistics NZ may eventually report as a seasonally adjusted decline of up to 1%. December Quarter Weak For All Vehicle Registrations In December there were 18,321 cars registered around New Zealand. This represented a 4% fall from a year ago and small 0.6% rise for the 2004 calendar year. In the December quarter registrations were down 3.3% from a year earlier and in seasonally adjusted terms were down about 1% from the September quarter. The data show that after a wee surge in registrations in November things have reverted to their underlying downward trend with consumers easing back on car purchases (along with businesses making fleet purchases of course). Housing Construction Decline Continues In November the seasonally adjusted number of dwelling consents issued fell by 5.7% from October and in unadjusted terms was down by 11.8% from a year earlier. There is a clear downward trend in construction with consent numbers falling 14% seasonally adjusted in the November quarter from the August quarter. Stripping out apartments this quarterly decline changes to 10%. The data show activity remains at a very high level with 31,218 consents issued in the year to November – up 4.6% from the previous year and 29% above the ten year average. But things are turning around reasonably quickly. there are underlying pressures building up against the NZD. These include growth slowing this year to near 2.5% versus world growth coming in just over 3%. Our current account deficit worsening to perhaps 7% of gross domestic product from 5.8% currently. Monetary policy might not be tightened again whereas US rates are expected to rise around 1.5%. Our export commodity prices are showing growing signs of easing back from unusually high cyclical peaks and this will help further constrain export incomes. This process will be assisted by long-running cover running off for NZ exporters. Come the end of next year we feel the NZD will be back near its long run average against the USD of about 58 cents. But in the interim we suspect there will be some high currency volatility derived not just from the building pressures for the NZD to fall later this year but the risk of coordinated global policy announcements regarding the greenback, euro, yen and the undervalued Asian currencies.

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