Highlights of the latest quarterly economic overview:
- As the dust settles – the February 22 Christchurch earthquake has rewritten New Zealand’s economic outlook. All thoughts of recovery this year have been brushed aside. Next year, reconstruction activity in Christchurch will provide growth impetus. But rising interest rates will crimp activity in some parts of the economy (see Economic Outlook, page 2).
- Rebuild and repair – The sector with the strongest outlook is construction, but there are other good news stories including high commodity prices and the Rugby World Cup. By contrast the squeeze on manufacturers will continue (see Sectoral Trends, page 4).
- In the face of adversity – The New Zealand dollar has held firm in the face of recent events, with global demand for commodities continuing to underpin its fortunes. The RBNZ will be raising interest rates substantially once the reconstruction of Christchurch is into full swing, though the risk of an earlier move is low – raw material costs are rising, but in the wake of a drawn-out recession the pricing power simply isn’t there (see The Markets, page 6).
- The turn of the screw - Global commodity prices rose sharply in early 2011 and in many countries the monetary policy screws are tightening. It seems inevitable that global growth will moderate this year. Key risks include Chinese overheating, Middle Eastern politics, and European fiscal woes (see International, page 8).
- A matter of exchange – A view has been gaining ground in policy circles that higher savings would bring about a lower exchange rate. In our special feature, we explain why we think that is wishful thinking (see Feature article, page 10).
