Tag Archives: economy

Offshore worries persist, says Alexander

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Some weekend reading for you. In his latest BNZ Weekly Overview (18 October 2012), written during a trip to Europe, Bank of New Zealand economist Tony Alexander says offshore worries persist.

In Europe, the tipping point at which the need to maintain social cohesion outweighs seemingly sensible and necessary economic policies “is the closest it has been since this crisis started.”

He notes various central banks around the world printing money (he doesn’t advocate it for NZ), the increasing media discussion of alternative economic models and rising support in the UK for leaving the EU. He points to soaring global food prices, social tension and international divisiveness resulting from weather-induced crop failures as “very concerning” and go a long way toward explaining why his view on prospects for NZ growth is relatively sanguine.

“We are not going to boom given that people are sensibly concentrating in keeping debt ratios down, there is restraint on some price-based companies from the high NZ dollar (which will remain high), we look fundamentally good to investors as they compare economies and falling food production overseas means higher demand for our commodities and the systems we use to produce them,” he writes.

According to Alexander, challenges include: to facilitate the adjustment of some sectors to a permanently high exchange rate which they cannot live with in the long-term; “get off our butts to take advantage of the demand for our agricultural expertise”; upgrading infrastructure; improving connections between NZ businesses and those overseas; addressing the Auckland housing crisis; and building up public financial reserves to assist during the next crisis.

In addition, Alexander has set up a Facebook page, specifically for discussing the NZ-China relationship and as a tool for disseminating information and “furthering my own still inadequate knowledge,” he says.

The Weekly Overview will be available at the BNZ website in due course, where you can also subscribe by email to receive regular copies.

 

The Kiwi dollar will rise further against the greenback

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Bank of New Zealand economist Tony Alexander wrote an excellent piece this week and made some interesting observations that he says are important for exporters to understand as they struggle with a high New Zealand dollar. He says the Kiwi dollar is going to rise further against the greenback. He explains his thinking in a cutout from the BNZ’s Weekly Overview.

Building Export Markets, government releases progress report

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The Government has today unveiled its first Business Growth Agenda Progress report on actions to boost New Zealand exports. It is a timely appearance as the Primary Sector Boot Camp reaches its halfway point in the US.

Launched by Finance Minister Bill English and Economic Development Minister Steven Joyce, the Building Export Markets report from the Ministry of Business, Innovation and Employment (MBIE) confirms the Government’s target to increase the contribution of exports to the economy from 30 percent to 40 percent of GDP by 2025.

English says this a challenging target and achieving it will require a concerted effort by New Zealand over many years. It will also require the continued development of new and expanding export markets.

“It is only through exporting that New Zealand, with a small domestic market, can deliver the growth and productivity required to enhance the wealth of our country and create more and higher paying jobs,” he says.

“Committing to this ambitious goal means the Government will stay focused on supporting firms to grow their exports.”

Steven Joyce says the report highlights the significant shift in economic power from the West to the East that is expected to happen over the next 20 years.

Building Export Markets is the first of six progress reports on the government’s Business Growth Agenda. Others will address innovation,skills, capital markets, infrastructure and resources. The reports lay out the work programme government agencies are implementing. Each has an informal portfolio group of ministers specifically grouped around the work streams, to drive the Business Growth Agenda forward and focus on what matters to business and companies.

Government intends to see three additional cross-cutting themes to be reflected across the Business Growth Agenda workstreams. These are: Maori Economic Development, Greening Growth; and Regulation. Better telling the ‘New Zealand Story’ is another Government priority and work is already underway with key stakeholders on “developing a compelling and consistent narrative about our country’s special qualities that work for a range of exporters and sectors,” according to the Ministers.

Actions contained in the Building Exports report include improving access to international markets, making it easier to trade from new Zealand, helping businesses internationalise, increasing value from tourism and high-tech manufacturing, growing international education and strengthening high-value manufacturing (including food and beverage manufacturing) and services exports.

“This first report is important, as it lays out the challenge for achieving growth – which is about being much more closely linked into the rest of the world and taking advantage of our opportunities,” says Joyce.

“While the world is going through tough times, the growth in Asian incomes will occur over the next 20 year. So there will be job growth, New Zealand’s challenge is to ensure it occurs in New Zealand, not in Australia, or somewhere else.”

The report shows that beef, lamb and wool accounted for 13 percent of New Zealand’s total $47.7 billion goods exports in 2011.

The Building Export Markets report is available here.

Carter in US for boot camp

Because of its size and importance, New Zealand’s primary sector, which currently accounts for 55 percent of exports is “critical” to achieving the government’s desired growth, the report says, so the outcome of this week’s Primary Sector Boot Camp at Stanford University will also be critical.

Minister of Primary Industries, David Carter, is part of the nine-strong Export Markets ministerial group, which also includes Prime Minister John Key, Steven Joyce, Murray McCully and Tim Groser.  Carter is travelling in the United States this week to attend the Boot Camp and also to talk with US agriculture sector political leaders and officials.

“This is an excellent opportunity for the leaders of some of our most forward-thinking primary sector companies to collaborate on formulating a plan to leverage New Zealand’s competitive advantage globally,” Carter said before he left.

“It’s not often that we can get a powerful group like this representing over 80 percent of New Zealand primary sector exports around the table, and I am confident of a positive outcome.”

About 20 leaders from New Zealand’s dairy, meat, seafood, wine and horticulture industries are among those attending the week-long camp alongside top government representatives from MPI and NZ Trade and Enterprise. The group will be hearing from first class speakers to inspire and motivate their thinking. The event has been supported with a $100,000 grant from AGMARDT.

Among the range of agricultural organisations the Minister is meeting with separately to discuss common New Zealand–US primary industry interests are the Tri-Lamb Group and US Cattlemen’s Association.

“These meetings further strengthen the New Zealand-US bilateral relationship and give our two countries the opportunity to canvass a range of issues in the primary industries policy area.  It is an opportunity to highlight the excellent collaborative work we already have with the US though the Global Research Alliance on agricultural greenhouse gases,” says the Minister.

“I particularly look forward to discussions on the mutual benefits that will be realised through the Trans-Pacific Partnership free trade agreement currently under negotiation.

“The TPP is important to New Zealand’s trade future and this visit will provide the opportunity to take political level readings on its progress.”

NZ farmer confidence plummets

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Federated Farmers has found that farmer confidence has plummetted in its latest Farm Confidence Survey.

In January, the mid-way point for the 2011/2012 season, farmer confidence in their profitability was strong. The 2011/2012 season was probably one of the best in recent times for meat, wool and dairy and would be difficult to top, says Federated Farmers‘ president Bruce Wills. However, this has gone fully into reverse gear with most farmers now expecting farm profitability will worsen over the coming year, he says.

“The past few months have seen large falls in commodity prices, with the June 2012 ANZ World Commodity Price Index down 12.3 percent from January. The exchange rate has not fallen to the same extent so has eaten into farmgate returns.”

The $64,000 question for all farmers at the start of the 2012/2013 season is whether prices will fall further. “We are all keeping a wary eye on the global economy and, frankly, we don’t like what we are seeing,” says Wills. “That New Zealand is ‘less bad’ when compared to Europe and North America, provides cold comfort when our dollar is kept artificially high because of it.”

The survey showed farmers continue to believe that prudent fiscal policy should be the Government’s highest priority – which is reducing government spending, balancing the books and reducing government debt.

Some headline results from the survey are:

  • A net 38.7 percent of respondents expect general economic conditions to worsen over the next 12 months.
  • A net 30.4 percent of respondents expect to increase production over the next 12 months (down from a net 47.7 percent in January).
  • A net 13 percent of respondents found it harder to find skilled and motivated staff (up 1.8 points from January).
  • Respondents’ biggest single concern is the level of commodity prices and/or farmgate prices, cited by 20.2 percent of respondents.

Export meat price fall confirmed, but temporary

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A fall in merchandise export prices for meat products has been confirmed by Statistics New Zealand in its latest figures comparing the March 2012 quarter against December 2011. However, this is expected by some to be temporary and export prices should improve later this year.

Overall, merchandise export prices fell by 3.8 percent in the same quarter, reflecting a 5.5 percent appreciation of the New Zealand dollar (according to the Reserve Bank’s trade weighted average). Amongst the falls for major commodity groups, prices for meat products (especially lamb), which accounted for 12 percent of exports, were down by 3.6 percent in the quarter, while other price falls were recorded for dairy (-5.6 percent) and forestry (-4.2 percent) products.

New Zealand’s merchandise terms of trade (the ratio of export prices to import prices) fell by 2.3 percent in the March 2012 quarter when compared with December 2011 – the third consecutive quarterly decrease since the terms of trade peaked in the June 2011 quarter, Statistics NZ says.

Looking at the wider market implications, Westpac’s senior economist Anne Boniface says the  data broadly confirms Westpac’s understanding of the NZ economy and on its own won’t change the outlook for the Reserve Bank. “Nonetheless, export prospects are certainly dimming this year. But while acknowledging the near–term weakness in commodity prices and its impact on the NZ economy, we must keep the recent moves in perspective – the terms of trade remains 10 percent above its average levels of the last decade,” she says, adding that current weakness is expected to be cyclical rather than structural. “By the final quarter of this year, stimulatory policies by authorities in China should be starting to gain traction, boosting growth and demand for commodities. Consequently, we expect to see commodity prices stabilise and start to improve.”

Boniface remains firmly optimistic about prospects for New Zealand export prices over a longer horizon, she says.

Great pastoral conditions along with continuing good prices

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Photo: Courtesy B+LNZ

Beef + Lamb NZ’s mid-season update for the sheep and beef sector reports that export receipts estimated at $6.6 billion hold at last year’s level. Last year, export receipts for the sector were up 15 percent.

Expectations are for a small lift in export volumes and continued good prices relative to recent years. This will be moderated by the strength of the New Zealand dollar, particularly against the Euro and British pound.

The report contained few surprises for B+LNZ Economic Service director Rob Davison, who says it’s rare for such good pastoral conditions and international prices  to align. Lamb prices are expected to average at $115 a head, slightly down on 2010-2011’s high. Offshore prices are expected to remain at good levels, though the stronger NZ dollar against the pound softens the price received here. The recent strengthening of the NZ dollar against its US counterpart is also a concern, Davison says.

Global mutton supplies remain tight, while beef exports are expected to lift in the 2011-2012 season which ends in June.