Forum Archive Index - June 2000

["Warner Lamb" <cloud9@i4free.co.nz>]

This points to some overall trends for NZ.
1.Retail and Building bad (as Disposable $ gets sqeezed)PRG,WHS?,FLB?
2.Exporters looking good.
F&P, Scott tech, PDL, etc.

Title: NZ Watch: An Economy In Transition Or In Decline?

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Wednesday, June 28 10:00 AM SGT

NZ Watch: An Economy In Transition Or In Decline?

   By Chris Ritchie 
 
   A Dow Jones Newswires Column

WELLINGTON (Dow Jones)--Depending on who you talk to, New Zealand's economy is either in transition toward a new period of export-led growth, or is so fragile it risks being tipped into recession by any further interest rate rises.

When Statistics New Zealand this week published first quarter gross domestic product data, economists' interpretations of the report's monetary policy implications were as mixed as the growth described in the report.

Everyone agreed the galloping pace of growth seen late last year, fueled by domestic consumption in a historically low interest rate environment, couldn't last into 2000.

But a clear difference of opinion has emerged as to whether what Reserve Bank Deputy Governor Murray Sherwin has called the "grumpy recovery" seen so far in the first half of 2000 represents the birthing pains of a new, export-led phase of growth - or is a prelude to general malaise.

Speaking to lawmakers last month, Sherwin said the current growth phase in the economy is uneven, and some people may feel pessimistic because the sectors of the economy they live in aren't participating in the growth.

"We can think of this as something of a Swiss cheese recovery - plenty of overall substance, but with holes scattered throughout. We can expect to see the export sector generally enjoying robust profitability and expanding relatively quickly," he said.

"At the same time, we may well see the domestic economy, or parts of it, remaining fairly subdued. This will be particularly the case if householders' appetite for additional debt has finally waned - in the way we have suggested was possible in recent statements," he said.

Officials in the Labour-Alliance coalition government fear the potential electoral backlash of domestic-sector weakness, but privately rejoice at the composition of growth projected for coming quarters.

After running current account deficits every year for over a quarter of a century, the current environment in which exporters grow rich on higher earnings - while debt-laden consumers start to modify their consumption patterns - can only point to an improvement in the balance of payments, they say.

In many respects, the present economic upswing is the mirror-image of the mid-1990s, when a high exchange rate devastated exporters but overall growth was maintained courtesy of a significant rise in net immigration and fiscal easing via tax cuts and new spending.

This time around, the government has raised taxes, let its spending decline a little relative to GDP, there is net outward migration, and the exchange rate is stimulating exports and providing a platform for solid overall growth.

- 
   Consensus View Remains For Export-Led Growth 
-

Ulf Schoefisch, chief economist at Deutsche Bank (NZ) Ltd., says it is important not to exaggerate the monetary policy implications of the first quarter GDP data, which was much softer than data seen late last year, and the likely slowdown in the pace of growth in the second quarter.

The production-based measure of gross domestic product rose a seasonally adjusted 0.8% in the first quarter from 1999's fourth quarter, and rose 5.5% compared with 1999's first quarter. The result was above the Reserve Bank's 0.6% quarterly growth estimate, which was also economists' median forecast.

"Ultimately world growth is pretty good. Europe is posting good numbers these days, and Japan is improving so that even if the U.S. economy is slowing somewhat there are other engines of growth out there," he said.

"With the very competitive New Zealand dollar, New Zealand exporters should continue to be doing pretty well," Schoefisch said.

A clear majority of economists surveyed by Dow Jones Newswires this week are confident enough at the prospect of ongoing economic growth that they expect the Reserve Bank to raise the official cash rate at least two more times this year.

The OCR is anticipated to rise to 6.75% in August, from 6.5%, and then rise to 7.0% by November.

These economists expect currently low levels of business and consumer confidence to gradually improve over the course of the year, as some of the extra export earnings trickle down into higher wages for employees in the export sectors, and then flow through to higher spending - particularly in provincial areas where much export production is located.

- 
   National Bk: No Further Cash Rate Rises Needed 
-

But there is a significant minority of economists who argue that any further rate rises this year could derail the economy.

National Bank of New Zealand Ltd. economist Joselyn Stroombergen says "it wouldn't take much" to engineer a recession.

Stroombergen says aggressive rate rises by the central bank between November and May have already strongly reduced activity levels within domestic-orientated sectors of the economy, such as retailing and housing, while business and consumer confidence levels have reached very low levels.

"Basically, the domestic sectors of the economy have pretty much had it. Retail sales, housing activity and confidence have taken direct hits which isn't surprising given what has happened to discretionary income so far this year," she said.

There is a danger that weak or negative consumer and business confidence levels could become a "self-fulfilling prophesy," delivering ongoing weakness in the economy, she says.

A survey of consumer confidence Wednesday by Westpac Bank recorded the largest ever one quarter fall in confidence in the second quarter, though optimists still outnumber pessimists.

---

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