Molesworth & Featherston (Weekend) – 2nd Dec. 2005

Direct Link To This Week's Weekend Update Edition:
http://molesworthandfeatherston.info/pdf/MandF2Dec05L.pdf

Economy

What goes up

The kiwi dollar is touching 95 cents Australian and it’s over seventy US cents again, driven by a simple rule of economics - when more people want to buy something, its price goes up. Overseas holders of cash want to buy our currency and stash their money here where they can earn interest rates well above those offered by our competitors. They believe they’re on a one-way bet: We can’t afford to allow our currency to fall because the inflationary pressure would be intolerable with price rises already outside the Policy Targets Agreement. The Reserve Bank is picked to increase interest rates again next Thursday as it tries to bring price rises back inside the three percent limit, making New Zealand bonds look even better.

Contrary to widespread claims that the economy is struggling...it isn’t. We’re borrowing because we think our incomes will be good enough to pay the cash back. GDP is growing - albeit more slowly, but still growing. And detailed surveys of exporters don’t really support the widespread claims exporters are being hammered, either. Last week’s DHL Export Barometer found nearly two thirds expect their individual businesses to increase offshore sales over the next twelve months:

The DHL Barometer found two thirds of exporters expect greater profitability over the next 12 months, and their expectations have been strengthening this year.

There are risks ahead. The Ministry of Economic Development's briefing to its gaggle of incoming ministers says things will get tougher in the next couple of years - and not just for exporters.

The rapid growth of China, India and other Asian economies will force New Zealand to shift more toward the skilled end of the value chain. It will also keep pushing up the prices of fuel and raw materials, as well as transport, although as Chinese incomes rise so will its importance as a market. The Ministry says we need ‘large’ investments in transport, electricity generation, gas prospecting and electricity transmission.

Public financing and ‘wide-ranging’ regulation will be needed because competition in the infrastructure sectors is weak. It’s also making a limp call for more privatisation of the energy SOEs, calling for increased ‘private sector expertise and market disciplines’.

ALSO IN THE WEEKEND UPDATE…

UPGRADE

The Governor’s Edition of Molesworth & Featherston is smarter, it arrives midweek and covers the issues in thoughtful depth. This Christmas you can give a subscription to a mate for half price if you upgrade now with your credit card.

A FOREIGN AFFAIR

The Government hopes for an end to ongoing criticism over Winston Peters’ appointment as foreign minister outside the government. But fresh criticism in the EU Parliament keeps the issue alive. Page 3.

PARTY POLITICS

Many of our readers, contributors and the people we write about will be at the Press Gallery Christmas Party. So Molesworth & Featherston is springing sponsorship. For the white wine. You know we can’t take sides. Page 4.

MEDIA TATTLE

Michael Cullen recruits a new press sec from TVNZ, staff at Fairfax’s suburbans are revolting and the EU is asked to add Internet sharing of music to anti-terrorism laws. Page 5.

The Weekend Update is a complimentary, condensed edition of the paid-subscription only Governor’s Edition published last Tuesday.

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