2014 going to be a cracker

Brian Gaynor thinks next year will be a cracker for the economy:

There are strong indications that it will be a once-in-a-generation year, as were 1951 and 1974 when the New Zealand economy grew by 15.6 per cent and 7.2 per cent respectively.

Economic growth is unlikely to be quite as strong as 1951 or 1974 but we now have some similar characteristics, particularly a soft commodities boom and a huge increase in the country’s terms of trade index, which made these standout years. . . .

New Zealand’s economic performance has been disappointing since the mid-1970s, particularly compared with Australia. There have been occasional bursts of heightened economic activity, mainly driven by increases in consumer debt caused by rising house prices, but there has been limited investment in the country’s productive sector.

The economy has been characterised by large net migration outflows as New Zealanders have been attracted by high-paying jobs across the Tasman.

But the economic momentum has swung dramatically over the past twelve months and transtasman migration flows could reverse as Australians are attracted by greater job opportunities in New Zealand, particularly in relation to the Christchurch rebuild. . . .

He lists several reasons the outlook is more like the boom years than those of the past 40 years:

Terms of trade: The country’s terms of trade index rose 7.5 per cent, to 1356, in September, the highest level since December 1973. Australia’s terms of trade have fallen 18 per cent this year.

Dairy: GlobalDairyTrade auction prices have appreciated 52 per cent over the past twelve months and dairy exports surged 49.1 per cent in the three months ended October 31 compared with the same three months in the previous year. Recent surveys show that farmers have significant investment intentions, an important feature of New Zealand’s strong economic performance in the 1950s.

China: It is now New Zealand’s largest export market and is expected to continue to grow by more than 7 per cent a year.

Christchurch rebuild: The inner-city rebuild programme should gather momentum when construction begins on the justice and emergency services precinct from March next year, to be followed by the health precinct in the June or September quarter. These projects, which are mainly funded by the Crown and city, should encourage private sector investment in the inner city.

Migration: The country has had strong net migration inflows in recent months and had total net migration of 17,490 for the 12 months ended October.

This figure is expected to increase steadily over the next few months, and Statistics New Zealand figures show more than 90 per cent of new arrivals settle in Auckland.

Housing: The strong migration inflow should continue to boost the housing market and housing construction, particularly in Auckland.

Government finances: The Crown’s financial deficit is falling and the Key Administration may announce tax cuts in May’s budget. However, large expenditures on the Christchurch rebuild may restrict this option.

Confidence: Business, consumer and farming confidence are all at, or near, all-time highs.

Companies: Most domestic companies have strong balance sheets and plenty of capacity to expand and invest. Rod Drury and Xero have lifted the ambitions of New Zealand companies and we now have a large number of young entrepreneurs with aggressive global aspirations.

KiwiSaver: Last but not least is KiwiSaver, which is giving us a pool of private permanent funds that can be partially invested in the domestic productive sector. KiwiSaver ought to have the same positive effect on the domestic economy as Australia’s compulsory superannuation has had on its economy.

In view of these factors the outlook for the New Zealand economy is exciting, the best it has been since the early 1970s.

The present export- and investment-led upturn could be maintained for several years – as long as dairy prices don’t collapse, the Chinese economy doesn’t go into an unexpected downturn and there isn’t an external shock like that of the mid-1970s. . .

Another threat would be a change of government.

Labour left office in 2008 forecasting a decade of deficits. National has turned that around in spite of the global financial crisis and the Christchurch earthquakes.

Policies espoused by Labour and other opposition parties show they have learned nothing from the mistakes which put New Zealand into recession before the rest of the world.

Gaynor isn’t the only one with a  positive view of the economy:

. . . Harbour Asset Management’s managing director Andrew Bascand says this year’s been a banner year for economic growth but next year’s likely to be even better.

“The outlook for 2014 is for better global economic growth – modestly better – and certainly for even stronger New Zealand economic growth,” Mr Bascand says.

“If there’s one key risk, it’s how households and businesses think of the rising interest rates environment, and a second risk is concerns around uncertainty with an election”. . . .

Reserve bank governor Graeme Wheeler has clearly signalled a rise in the official cash rate next year which will push up interest rates.

But given they are at historic lows that isn’t unexpected and it’s better to have slightly higher interest rates than let inflation get out of control.

5 Responses to 2014 going to be a cracker

  1. Quintin Hogg says:

    Over lunch with a mate in the finance industry the suggestion was made that at least oneof the major trading banks thinks there will be growth north of 6%.
    I think that is optomistic but the way things are going i don’t think it is unatainable.

  2. TraceyS says:

    But growth is bad because “[o]ur earth is full, and there isn’t another one to move to”:

    http://www.scoop.co.nz/stories/PO1305/S00165/jeanette-fitzsimons-speaks-to-quakers.htm

    It doesn’t look all that full from where I am sitting.

  3. jabba says:

    Cunliffe is hoping the result of the stupid CIR and the Corus farce will get him into power .. he may need a little more

  4. Gravedodger says:

    Gee Robert was fortunate to abscond when he did, things have just got worseror and worseror —— for his fancy anyway.

  5. jabba says:

    don’t worry GD .. he will be at home in his dark little room reading Homepaddock, Keeping Stock, Whaleoil and Kiwiblog with his left eye twitching with frustration.

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