Friday 18th September 2009 |
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New Zealand's economic recovery is unlikely to be smooth and will probably stumble at some point, according to the chief executive of the country's largest bank.
The economy is probably on the first upswing of a W-shaped recovery and will likely take a tumble in coming months as the high kiwi dollar continues to hinder the prospect of an export-led recovery, ANZ National Bank's Jenny Fagg told a trans-Tasman credit conference in Wellington.
Her assessment is more downbeat than the Reserve Bank's, which, while calling the recovery patchy, predicts a slow grind upward.
"Directionally we're the same, we're just sensing there might be more of a dip along the way," Fagg told BusinessWire. "A lot of this confidence seems to be housing market related. Unless you get sustained retail spending up and exports up, and the exchange rate down, the fundamentals haven't shifted enough for it to be a smooth increase."
New Zealand's economy fell into its deepest downturn in 30 years last year, and central bank Governor Alan Bollard expects it to climb out of recession this quarter.
Bollard has consistently said the economy needs an export-led recovery for sustainable growth into the future, and this has been plagued a currency that has climbed more than 40% to 70.95 US cents from its sub-50 cents low in March.
The economy probably shrank 0.4% in the three months ended June 30, according to a Reuters survey, its sixth, and probably final, quarter of recession.
Export prices tumbled 11.6% in the second quarter, the biggest decline since 1951, as the currency dragged down prices for dairy products and meat. Statistics New Zealand will release gross domestic product and merchandise trade data for the period next week.
New Zealand exporters have enormous opportunity to tap burgeoning markets in Asia as they continue to urbanise and demand more raw materials from the likes of Australia and New Zealand, according to Fagg.
There's "incredible expansion through Asia, and the logical place (for them to get quality food products) is through New Zealand and Australia, and if we don't tap it, it's hard to see how else we can grow the economy," she said.
The central bank projected exports to rise from the end of the year, and New Zealand commodity prices have climbed around 12% since February, according to the ANZ National Bank commodity price index.
Last week, Bollard said the recovery has been underpinned by recent gains in the property market, creating a risk to sustainable growth if consumers revert to a "borrow and spend" mentality.
Still, he doubts there will be a repeat of the recent housing bubble as the 4.4% gain in residential housing prices over the past four months was due to an unusually low number of properties for sale.
Property values have improved for four straight months, according to QV Valuations data. The stabilisation in the property market has been driven by rising net migration and a fall-off in new building consents, spurring demand to outstrip supply.
Businesswire.co.nz
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