BNZ Weekly and Offshore Overviews May 22 2008

Welcome to the May 22 2008 editions of the BNZ Weekly and Offshore Overviews.

The government revealed some larger than expected tax cuts in today’s Budget which because of the extra support implied for growth and inflationary pressures has pushed wholesale interest rates up from a week ago and seen the NZD end three cents ahead of last Thursday. But with rising food and energy costs the money in people’s pockets from October – just ahead of the election as we had expected –doesn’t alter our outlook for a very subdued economy over the remainder of this year.

Maybe its best to think in terms of the fiscal largess improving the chances of a reasonable growth recovery from late-2009. But it will need to be led by the export sector and optimism about the extent to which the NZD will fall is likely to be contained in the short term as the chances of an extra swift easing of monetary policy later this year have reduced. But we still see scope for the likes of the two year fixed housing rate to settle just above 8% very late this year before falling to the five year average of 7.8% in 2009.

This week we take a look at the extent to which residential construction activity is likely to ease in the coming year – possibly a 30% fall in consent numbers from their peak. The environment will be tough for those companies with the wrong business model, hardware stores, and suppliers of residential building products. But our belief that an under-supply of dwellings will appear late in 2009 means better times for this sector over 2010.

We also look at retailing again to see which store types are running large inventories. Knowing this can give insight into where we consumers should bargain hardest for cheap deals.

Attachments:
WOMay22.pdf
OOMay22.pdf

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