First issue of the BNZ Weekly Overview for 2010

Welcome to the first issue of the BNZ Weekly Overview for 2010

Last year was all about moving away from a Depression scenario and growth appearing here and overseas. Responding to the absence of a dire outlook we saw some massive shifts in asset prices with medium to long term borrowing costs jumping back up, risky currencies like the NZD soaring, commodity prices jumping, sharemarkets rocketing away, and house prices recovering almost all of the ground earlier lost.

Late in the year, while there were welcome signs of consumer spending growth improving, while some other indicators settled down a tad after a burst of activity– most notably in the housing market. Business employment and investment intentions ended well ahead of where they were at the start of the year, but were/are still marginally below average and therefore supportive of a good but not stellar outlook for the economy this year.

This year, assuming nothing major happens overseas, the major points of interest will be the government’s Budget in mid-May and when and by how fast the Reserve Bank tightens monetary policy. The Budget could bring some very welcome tax changes but it is guesswork at this stage exactly what they will be (though big hints will come out way before the Budget). It seems clear something will be done to reduce the absurd situation of housing investments being subsidized by taxpayers and this will cap price gains this year while at the same time aggravating the underlying accommodation shortage as investors ease away from construction. The short versus long term price implications bear thinking about.

We expect the RB will start raising the cash rate in the middle of the year though before then fixed borrowing costs are likely to drift slowly higher.

BNZ Weekly Overview Jan 21 2010 (pdf)

ENDS

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