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BNZ tracks positive short-term performance

BNZ tracks positive short-term performance

(7 May 2013 – New Zealand) A comparison of recent economic data by Bank of New Zealand (BNZ) shows New Zealand is outperforming Australia for a change. BNZ is forecasting the New Zealand economy to grow by 2.9 percent this year and 3.6 percent for 2014, while its parent – National Australia Bank (NAB) has picked the Australian economy to grow by 2.4 percent and 3 percent respectively.

Stephen Toplis, BNZ’s head of research said that the purpose of the comparison is not to gloat, as the period of outperformance is short-lived and an exception to the rule.

"Moreover, from New Zealand's perspective a stronger Australia is always more desirable.'

The flipside to that outlook, however, is a narrowing gap between the two countries' interest rate tracks, with the Reserve Bank of Australia (RBA) expected to cut soon while the Reserve Bank of New Zealand (RBNZ) is expected to raise rates before its Australian counterpart does.

The upward pressure on the Kiwi dollar against the Aussie dollar would be unhelpful to exporting manufacturers, whose largest market is Australia.

Australian manufacturers are suffering from the effects of a particularly strong currency. The exchange rate is an issue for their New Zealand counterparts, however Kiwi manufacturers are more upbeat.

A barometer of manufacturing, the PMI, plunged even deeper into negative territory in Australia last month. At 36.7 it is back to 2009 levels.

Any reading below 50 indicates the sector is contracting. New Zealand's PMI for April has yet to be released but in March it stood at 53.4, the sixth consecutive month above breakeven.

The very strong growth expected in construction during the next few years would provide a safety net for manufacturing, Toplis said.

Building consents for new dwellings in March were 12.1 percent up on March last year. The equivalent increase in Australia was 3.9 percent.

Toplis said the RBNZ was worried about the current level of house prices, for prudential reasons, and the pace of increase, also for prudential reasons and quite possibly for monetary policy reasons soon.

'These concerns are not going to dissipate any time soon.'

'In the short term, at least, commodity prices and the terms of trade will offer support for the New Zealand dollar,' Toplis said.
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