Financial Commentary
Rodney Dickens
2012 - A Pretty Bland Year in terms of Performance
2012 was a pretty bland year in terms of the performance of the local economy, delivering around 2% growth. 2013 should not only deliver somewhat above average economic growth, but it will also deliver several interesting special events that will have significant impacts on numerous firms.
The chart shows that leading indicators of economic growth and consumer spending ended 2012 on stronger notes. This is a good sign for growth prospects in 2013.
NZIER’s own activity survey rose to the highest level since 2007. The Westpac McDermott Miller consumer confidence survey also rebounded. These surveys should improve further as the drivers of stronger growth filter around the economy.
Most importantly, 2013 should deliver a surge in residential, non-residential and infrastructure rebuilding in Canterbury. A wide range of firms will supply goods and services to the rebuilding and it will fuel stronger employment and income growth.
Rebuilding in Canterbury should be aided by a moderate upturn in residential building in the rest of the country driven by the fall in interest rates in 2012. This upturn could be aided by improved net migration.
Net migration is already being boosted moderately by immigrant workers for the Canterbury rebuilding. At some stage the outflow of Kiwi workers to Australia will abate and drive a more significant improvement in net migration, although it may not arrive until 2014.
The financial crisis has started to heal, resulting in lower overseas funding costs for banks and lower fixed mortgage rates. More healing should occur in 2013. In the first instance this could mean lower interest rates. But the healing is likely to also result in higher international and local wholesale interest rates. And when combined with stronger economic growth, healing in the financial crisis brings with it the risk that token OCR hikes could start before the end of the year.
The NZD will most likely remain high and could head even higher driven by increased international risk appetite resulting from the healing in the financial crisis and improved local growth performance.
The chart shows NZIER’s survey of firms’ experienced activity (black line, left scale) and the Westpac McDermott Miller consumer confidence survey (blue line, right scale).