FINANCIAL COMMENTARY

Financial Commentary

Many businesses found 2010 challenging. The economic recovery was weak by historical standards while many firms faced clients still focused on cost cutting. But thanks to two major events in 2011, better times lie ahead for many industries.

In December the RBNZ revised down its near-term growth predictions, mainly because of the housing downturn being driven largely by the property tax changes. In my assessment near-term prospects, especially in residential building and related industries could be worse than the RBNZ is predicting.

But the RBNZ also revised up its predictions for 2011-12 and it won’t be long before the biggest factor driving growth in 2011 will kick off.

The reconstruction job in Canterbury now has a $5b price tag and the RBNZ expects it to add 2.6% to national economic activity over a 2-3 year period. Around 5,000 dwellings will have to be completely rebuilt, equal to 30% of the number of new dwellings built nationally in the last year. The repair bill will be equal to more than a year of national alteration and addition activity. Plus $2b of repairs to infrastructure and commercial buildings.

This will boost demand for a wide range of Canterbury and national firms. This will include the obvious, like timber, roofing, windows, etc. But improved employment prospects, as shown in the chart, will mean increased spending in a much wider range of areas.

The Rugby World Cup is the other major event in 2011. The official estimate is for 85,000 overseas visitors who will be spread around a number of regions and many of whom are likely to travel and spend more generally.

This will add 2% to the national population of eaters and people requiring accommodation, but more like 4% to the population of drinkers. However, not long after the final whistle blows on 23 October most of the visitors will leave, taking their empty wallets with them.

Written by Rodney Dickens. Visit www.sra.co.nz to learn about SRA Ltd’s services.

The chart shows the improvement in the NBNZ survey of employment intentions since the Canterbury earthquake.