BNZ Weekly Overview and Offshore Overview

September 18 2008 editions of the BNZ Weekly Overview and Offshore Overview.

As so many analysts have been noting for the past year there is as yet no sign that the US-sourced credit crisis is ending.  Over the past week things have become tremendously worse with bank failures and buyouts and perhaps more to come in the next few weeks.  The investors banks need to purchase their securities seem miles away from gaining confidence that the worst of the capital losses associated with the collapsing United States housing market have been reported by banks. Thankfully, apart from the US housing market, this worst financial crisis in the 1930s is not turning into a major economic rout.  However the longer the credit crunch now underway in the United States, United Kingdom, and Europe goes on the worse the outlook for world growth.

In fact falling expectations for world growth have contributed to the extreme weakness in sharemarkets over the past week, but they have also produced falls in commodity prices.  This is good for ourselves as an oil importer but is also leading to reduced international food prices that is injecting some caution in the farming sector.  At least that is likely to happen soon because as with other confidence measures the sentiment of farmers has soared in New Zealand recently.

We maintain our warning that although developments in New Zealand such as falls in interest rates, the exchange rate, petrol prices, and less falling rain have boosted local sentiment, growth expectations need to be kept in check. it is not reasonable to expect growth in our economy will be strong until some point in 2010 or perhaps optimistically very late 2009 if the global crisis eases substantially over the next few months.

ends

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