Economic forecast tries to look on the bright side
Businesses are still thumbing their noses at the Government and giving a downward bias to confidence survey results, says BNZ's Chief Economist Tony Alexander.
Sunday, November 12th 2000, 9:56PM
Businesses are still thumbing their noses at the Government and giving a downward bias to confidence survey results, says BNZ's Chief Economist Tony Alexander.
In the latest New Zealand Observer, he's come up with the following key forecasts:
- Growth through 2001 led by exporters, with muted growth in household spending
- Floating rates may have peaked, but uncertainty prevails. Fixed rates will fall very slowly.
- Exchange rate expected to rise next year, but a downward risk in the short term while the US dollar remains strong.
Alexander admits he's been on the hunt for leading indicators that suggest the economy will grow again over 2001 and 2002 "and stop people making poor business decisions based on expectations of no growth the next two years". So, that means looking beyond the recent business and consumer confidence surveys to more underlying forces such as monetary policy settings, interest rate analysis and the outlook for world growth.
Stir in a bunch of other indicators and it all adds up to:
- Domestic economic activity will be "weakish" but not recessionary through to mid 2001, and then rise following the completion of cyclical cutbacks and lifting export activity.
- Business investment in exports and import-substitution will be constrained over the next few months thanks to uncertainty over currency levels and costs. However, Alexander says that, eventually very firm investment growth is likely as those projects that are currently being deferred are brought back on stream.
He also holds that the export risk over next year is for growth that's a bit slower than most people are currently expecting. The reason: leading indicators of downward revisions in world growth predictions on the back of higher oil prices.
Alexander says the Reserve Bank will be left in two minds about what to do with monetary policy, given the uncertainty over second round effects of over three per cent inflation as well as the timing and strength of the exporting upturn induced by our low exchange rate.
On the positive side, there's another good rural season already leading to greater farm investment and retail spending, as well as planned investments in telecoms, forestry and energy. However, the negatives include a slowdown in household borrowing and spending now the debt-to-income ratio reaching what Alexander says is an international norm of 105 per cent, "and as we suspect people begin to build financial assets for retirement in increasing preference to residential property".
Go to Mortgage News for more on the interest rate outlook