Rock star economy will play encore

July 21, 2015

Opposition is a dark place where good is bad and bad is good.

While they’ll never admit it, oppositions can’t really enjoy good news for fear it’s good for the government and  threatens their relevance and they  take a perverse pleasure in bad news in the hope that it will be bad for government and good for them.

That’s why  opposition MPs have been doing their best to talk down the economy and doing a Chicken Little the-sky-is-falling as they over-emphasise the negative impact the sharp decline in dairy prices will have.

Only those who hate dairying and financial success will be happy about the price of milk and low payout, but while dairying is important, there is more to the economy than that and talk of recession is, thankfully, misplaced pessimism.

Growth is slowing but an HSBC economist says  New Zealand’s rock star economy will play an encore cheered on by Chinese consumers.

HSBC co-head of Asian economic research Frederic Neumann said while China’s economy was slowing, along with many other Asian nations, the outlook for New Zealand was still strong.

“The rock star economy will still keep on playing because you guys [New Zealand] are in a sweet spot in terms of having the products that China has an insatiable appetite for,” Neumann said.

In 2014 Neumann’s colleague HSBC chief economist for Australia and New Zealand Paul Bloxham referred to New Zealand as a rock star economy.

However the title has been brought into question recently as gross domestic product growth slows, dairy prices slump, business confidence slips, the dollar falls and Auckland’s heated housing market continues to set records.

But Neumann said New Zealand was simply going through a rebalancing phase, moving away from a commodity dependent economy.

“After years of an overvalued exchange rate you need to have a considerable period of an undervalued exchange rate to get that rebalancing process going.”

Neumann said even if New Zealand did remain reliant on soft commodities that was not a major concern because demand for high quality food from Chinese consumers would grow much faster than the Chinese economy.

“That should be a positive for New Zealand so I’m not terribly worried for the dairy sector or the meat sector over time.” . . .

It’s not hard to find examples of people in difficulty in the best of times and some people are struggling but New Zealand as a whole is not.


Rural round-up

January 21, 2015

Action needed now to minimise drought losses:

Farmers need to act now if they are to cope with the effects of a predicted drought in Canterbury, Lincoln University experts say.

But they also need to be thinking long-term with more dry-spells looking likely.

Chris Logan, Animal Programmes Manager at Lincoln University, says it seems the region may be in for a hard drought of a kind which has not been seen for some decades. . . .

 HSBC says global dairy prices should recover:

HSBC’s economists are expecting global dairy prices will start recovering from current lows, largely because of a sharp run-down in Chinese dairy imports.

Paul Bloxham, HSBC’s chief economist in Sydney, said Chinese imports had dropped to seemingly unsustainably low levels.

He said once China begins buying again, prices should at least partly rebound.

Global Perspective Will Help NZ Agribusiness Grow:

An agribusiness symposium with a global focus will help New Zealand businesses continue to develop their production, marketing and logistics skills to grow sales and exports.

That’s the view of agribusiness consultancy, AbacusBio that is underwriting the second Queenstown Agribusiness Symposium in March 2015.

AbacusBio partner, Anna Campbell says after attending the Harvard Agribusiness Executive Seminar in China a few years ago, the company was inspired to organise a comparable event locally so more New Zealand businesses could benefit from the learnings and networking.

The three–day program is facilitated by the Director of Harvard Business School’s Agribusiness Program, Mary Shelman and Professor of Marketing and Associate Dean at UCD Michael Smurfit Graduate Business School, Ireland, Prof. Damien P. McLoughlin, who bring an international perspective, she says. . .

ANZ announces assistance package for farmers affected by Big Dry:

ANZ today announced an assistance package for farmers affected by extreme dry conditions across much of New Zealand’s east coast.

Many areas, including Canterbury, have experienced “severely dry” conditions over the past two months compared with the long-term average, according to Niwa.

“The Big Dry is affecting areas which haven’t experienced extreme conditions like these for many years, so for a lot of farmers this is new territory,” said Graham Turley, ANZ Bank’s Managing Director Commercial & Agri. . .

 

David Jones explains why the red meat sector growth targets are not likely without major reform, and what should be done in 2015 with a sector ‘unable to help itself:

Currently, over 80% of our agricultural produce is shipped offshore each and every year, and over the next decade the sector has big ambitions to double export earnings to $64 billion.

The Red Meat Sector Strategy (RMSS), launched by the Meat Industry Association of New Zealand in May 2011, hopes to achieve growth in the sector of $3.4 billion NZD by 2025, across all parts of the value chain.

The three key influences focused under RMSS are:

• Improving how and what we sell in overseas markets

• Aligning procurement between farmers and processors .

• Adopting best practice production and processing . . .

Economists to discuss challenges of feeding a growing planet . . .

A world perspective on the short and long run impacts of food price changes on poverty will be up for discussion at a major international economics conference in Rotorua next month.

The World Bank’s, Dr Will Martin, will lead the discussion on food price changes and poverty as part of a session on challenges in the agrifoods sector at the 59th Australian Agricultural and Resource Economics Society’s (AARES) annual conference being held in Rotorua from February 10 to 13.

Dr Martin is manager for agricultural and rural development in the World Bank’s Research Group and president-elect of the International Association of Agricultural Economists. His recent research has focused primarily on the impacts of changes in food and trade policies and food prices on poverty and food security in developing countries. His research has also examined the impact of major trade policy reforms-including the Uruguay Round; the Doha Development Agenda; and China’s accession to the World Trade Organisation. . .

 Farmers urged to watch for yellow bristle grass:

 Horizons Regional Council is urging farmers to keep an eye out for yellow bristle grass, an invasive summer weed that spreads rapidly through pasture causing a loss in production.

 Horizons environmental programme coordinator plant security Craig Davey says the grass is already affecting farming in Waikato and is easily transferred from roadside infestations, via stock movement and infested hay.

“Like a lot of weeds, yellow bristle grass is quick to colonise bare ground. Hot, dry conditions, poor machinery hygiene practices and spraying to bare earth can all exacerbate its spread,” Davey says. . .


Alt-country band rather than rock star

February 23, 2014

HSBC economist Paul Bloxham labelled our economy a rock-star one.

In the print edition of the NBR, (not on-line) Rob Hosking cautions points out the dangers in that:

New Zealand’s economic rock-star excesses of the 1970s led to a long and painful rehabilitation in the 1980s and 1990s.

New Zealand’s economy is in fact more of a good solid alt-country band – one whose members have been through rehab, kicked the worst of their nasty habits (though not all – see those household debt figures mentioned above) and which is now carving out a more mature, less over-the-top style.

It is one we should stick to.

New Zealand’s economy is growing again and it needs to keep doing so.

It’s the only way we can afford to repay debt and afford the first world goods, service and infrastructure, public and private, we want.

Falling off the responsible wagon will return us to the over-indulgence and excesses funded by over-taxing and spending which put New Zealand into recession long before the GFC.

The damage that would do would eventually require another long and painful rehabilitation and we don’t want to go back there.

Friday’s announcement that the operating deficit before gains and losses was $379 million higher than forecast shows there is no capacity for excess.

. . . “Given the large size of both the revenue and spending bases, overall we are still tracking reasonably close to forecast for the first six months of the financial year,” Mr English says. “And we remain on track to surplus in 2014/15. As we’ve said many times, this will require ongoing discipline and responsible fiscal and economic management. “New Zealand certainly doesn’t need irresponsible and expensive spending promises – which we’re already seeing from other political parties – more than a year before we’ve even posted a surplus.” . . .

What we need is more of what we’ve got – disciplined spending and policies which promote growth.


NZ will be rockstar in 2014

January 7, 2014

New Zealand’s economic growth has been recognised by HSBC:

New Zealand will be the “rockstar” economy of 2014, with growth set to outpace most of its developed markets peers, according to HSBC, a stark contrast with neighboring Australia, which is struggling to maintain economic momentum.

“We think New Zealand will be the rockstar economy of 2014. Growth is going to pick up pretty solidly this year,” Paul Bloxham, chief economist for Australia and New Zealand at HSBC told CNBC Asia’s “Squawk Box” on Monday.

(Read more: Rate hike talk boosts New Zealand dollar)

HSBC forecasts the economy will grow 3.4 percent in 2014 – the fastest pace since 2007 and well above trend growth of 2.5 percent. For 2013, the economy is expected to post growth of 3.0 percent, according to the bank.

There are three key factors supporting faster expansion, said Bloxham.

The first is spending on construction, including the rebuilding of Canterbury region that was ravaged by an earthquake in February 2011. “There’s an enormous amount of construction that’s going into building that region of the economy,” he said.

Reconstruction spending is not expected to peak until 2017, and should continue to boost the economy for some time, Capital Economics wrote in a recent note.

(Read more: We can’t influence ‘currency war’: New Zealand)

The second driver is the country’s housing boom that has been fueled by low interest rates and a wave of net immigration over the past year.

While the Reserve Bank of New Zealand (RBNZ) tightened rules around home loans in October and is likely to begin hiking rates in the coming months, economists expect residential investment will remain robust.

The final factor is rising dairy prices – driven by strong demand out of China – which is supporting rural incomes, noted Bloxham. New Zealand is the top dairy exporter accounting for around a third of the world’s trade in dairy products. . . 

Tempering the good news are concerns about slowing down in the economies of our two biggest trading partners, China and Australia, and the probably increase in the value of our dollar.

. . . Nevertheless, many investment strategists recommend betting on assets that are set to benefit from the country’s economic surge – in particular the New Zealand dollar, informally known as the kiwi.

Kathy Lien managing director of BK Asset Management, for instance, has identified the kiwi, as the “hottest” currency of 2014.

(Read more: This could be the hottest currency trade of 2014)

“Of all the major currencies our favorite is the New Zealand dollar because in addition to talking about raising interest rates this year, the Reserve Bank also laid out a plan to bring rates from the record low of 2.5 percent to 4.75 percent by the first quarter of 2016,” Lien wrote in a note last week.

“No other major central bank is as hawkish as the RBNZ and with a high and growing yield, the New Zealand dollar should attract a significant amount of investment this year. What makes New Zealand dollar even more attractive is that demand will be supported by growth,” she added.

A higher dollar makes exports less competitive and makes travelling here more expensive for tourists.

But it also maintains the value of earnings and savings and keeps the price of imports lower – that’s not just luxuries but necessities like fuel, medical supplies, vehicles, building materials and machinery and it reduces imported inflation.


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