NZD: Economic headwinds warrant further OCR reductions - Westpac

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 4, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet – Imre Speizer, NZ Markets Strategist at Westpac, notes that the New Zealand’s annual GDP growth has slowed from 3.7% in calendar 2014 to an estimated 2.4% in calendar 2015.

    Key Quotes

    “While that seems still respectable, the gloss really comes off when one considers that population growth in 2015 was around 2%. In other words, per capita GDP growth was only a whisker above zero in 2015.

    Over 2016 the economy will face some important headwinds. (1) Low returns for farmers will impact farm investment and other forms of downstream spending. (2) The pace of rebuilding work in Canterbury is no longer accelerating. And (3) there is the risk that softer global demand become a drag on domestic activity.

    However, New Zealand's domestic demand picture is looking more favourable. Net immigration is expected to remain high, boosting spending. There is a strong pipeline of construction work (especially in Auckland), and we expect the pace of work to accelerate further this year. Tourism can expect to benefit from low global oil prices and the lower New Zealand dollar. Household budgets will get a boost from cheap petrol and low interest rates. And the lower New Zealand dollar will benefit firms that compete with imports as well as non-agricultural exports such as software.

    Despite decent domestic demand, inflation remains low, falling to 0.1% in Dec 2015. Whereas we previously expected inflation to rise in 2016, our latest forecasts now suggest inflation will instead remain close to zero for the whole year. It now seems likely that inflation will remain below the RBNZ’s 1% to 3% inflation target range until 2017.

    Circumstances do indeed warrant further OCR reductions. We are currently forecasting OCR cuts in June and August 2016, but there is a risk that the first cut could occur as soon as March.”
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