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New Zealand GDP Better Than Expected

New Zealand’s economy shrunk by -0.9% in the three months ending 2008 after economists had expected this south-Pacific country’s GDP to contract by more. The move marks the fourth straight quarter that the island-nation has seen its annual output decrease.

Since July the central bank has slashed interest rates by 5.25% to 3.0% in an effort to provide short-term liquidity to businesses and financial markets in order to stave off the effects of the global recession.

Now, in its fourth straight quarter of contraction, the New Zealand economy has shed thousands of job. In the final three months of 2008, their unemployment rate jumped 0.4 percentage points to 4.6%, the highest level since 2003. Their Treasury department predicts that it will get worse. They have forecast that by early 2010 the jobless rate may jump to an 11-year high of 7.2%.

Yesterday, the IMF released a report stating that New Zealand’s economy would contract a total of 2.0% in 2009 after 2008 experienced a slight 0.1% decrease. One key “vulnerability” that is likely to keep the country under water is the extensive amount of short-term borrowing from abroad, the IMF said.

This final period of the year saw the country’s currency depreciate by as much as -20.95%, but ended the quarter down only 10.15%.

– LG

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Filed under: Global Economics, World, , , , , , , , , , , , , , , , ,

New Zealand Trade Balance Soars on 11.6% Decline in Imports

New Zealand’s trade balance in February improved substantially from that which was expected. The figure jumped to 489.0 million from an expected 75.0 million after imports fell 11.6%.

The alleviating news comes just a day after Bill English, the nation’s Minister of Finance, said that the current account gap is “uncomfortably large.”

Imports fell as the New Zealand Dollar continued to stifle the purchasing power that domestic residents had for goods produced abroad. The first two months of the year saw their currency depreciate 16.57% against its U.S. counterpart and 9.12% against a trade-weighted basket of currencies.

The amount of goods shipped to the country from Europe fell by a staggering 21.3% and 14% from Asia.

– LG

Filed under: Global Economics, World, , , , , , , , , , , , , , , , ,

New York Strip Club Invites Australian Prime Minister and His Wife Back for More After Visiting Obama

NET: PRIME Minister Kevin Rudd and wife Therese Rein have been invited to a special dinner at the New York  nightspot scene of his infamous pole-dance experience. Rolling out the red carpet, the strip club formerly known as Scores has offered to entertain the VIP – and his wife – with dinner and a private room during his time in Manhattan…

Filed under: Humor/Irony, World, , , , , , , , , , , , , , , , , , , , , , ,

New Zealand Economy Will Contract 2% in 2009, Says IMF

In a report filed by the International Monetary Fund (IMF) the Washington-based body said that the New Zealand economy will contract by 2.0% this year. “The near-term outlook is weak,” they mentioned. “Households are constrained by high debt levels, falling house and equity prices and uncertain employment prospects,” they added.

The startling words come after Bill English, New Zealand’s Minister of Finance, said that the current account gap is “uncomfortable large”. Indeed, the actual figure for the current account balance in the final quarter of 2008 came in at -4.026, surprisingly better than in the three-month period prior. Despite what would look to be as a positive sign, the deficit-GDP ratio actually became weaker, coming in at -8.9% from -8.6% the period prior.

Claims of weakness in the country are legitimate. Now, in its fifth straight quarter of contraction, the New Zealand economy has shed thousands of job. In the final three months of 2008, their unemployment rate jumped 0.4 percentage points to 4.6%, the highest level since 2003. Their Treasury department predicts that it will get worse. They have forecast that by early 2010 the jobless rate may jump to an 11-year high of 7.2%.

One “key vulnerably” is the country’s substantial level of short-term financing from abroad. With the central bank slashing rates by 5.25% since July, foreigners have been continuously disincentivized to invest in these debts with maturities of less than one year. The IMF may have been too cautious here. Albeit this may seem to be a risk on an absolute basis, the fact that short-term rates abroad are much lower than those in New Zealand may actually direct a greater amount of these foreign cash flows towards this South-Pacific economy.

Now, since Mid-March the New Zealand Dollar has fallen by as much as 40.4% against it’s U.S. counterpart. Generally, such a bearish movle would lead investors in domestically denominated short-term debt to flock away in hysteria. But what if their was an expectation that the currency would begin to rise in value? Under such a case, one would expect exchange rate risk to be of less of concern.

We are seeing such a pattern now. From the low on Mar. 3rd, the currency has rebounded 17.95%. This may be due to the inflationary fears that the Federal Reserve, with its plan to buy $1.2 trillion in treasury and agency/mortgage securities, has sparked among global investors. During this time we have also seen gold rally 7.43% and crude (West Texas Intermediate) break out of a range bound environment and rally 37% to as much as $54.18.

Historically we have seen a strong correlation between the New Zealand currency and commodities. A 180-day rolling correlation with the S&P Goldman Sachs Commodities Index shows that these two instruments have a correlation of .9688, a very substantial relationship.

Thus, if inflationary fears are correct (which the commodities markets seem to believe) then the New Zealand Dollar is likely to continue rising. Hence short-term financing from abroad may actually increase and not decrease.

– LG

Filed under: Global Economics, World, , , , , , , , , , , , , , , , , ,

N.Z. Prime Minister Key Sees Nation Emerging Stronger After Tax Cuts

New Zealand Prime Minister John Key said that the nation’s economy will emerge from this recession much stronger. “I, for one, am confident that New Zealand can come out of this recession stronger than many other countries,” Key said. “These tough times could be a springboard for much better times ahead.”

Since reaching a high of 0.8213 in late Feb. 2008, the New Zealand Dollar has lost as much as 40.4% against its U.S. counterpart. But the Prime Minister has sees this as a positive shift. Indeed, “the exchange rate is acting as a buffer.” That is, “firms in some industries, including for example, sheep meat, venison, and even niche manufacturing, are getting better incomes as a result of the lower currency,” he added.

Australia’s neighbor has been in recession since the first quarter of 2008. It is likely that throughout the entire year, New Zealand’s economy shrank at least 0.3%. In that 12 month period, the unemployment rate rose from 3.4% to 4.6%. Since June the central bank has slashed the overnight cash rate by 525 basis points from 8.25%, the most of any nation throughout that period.

Key has taken steps to ‘think outside-of-the-box.’ His latest piece of legislation aims to give incentives for Australians to vacation in New Zealand. He has increased Tourism New Zealand’s budget by $2.5 million, an increase of more than 25% of its current $9 million budget. “The impact of the global recession is likely to result in New Zealand becoming a more attractive holiday option as Australian consumers tighten their spending,” Key said.

‘Trickle-down economics’ seems to be what Key really wishes to aim for. The Prime Minister plans to cut income taxes on Apr. 1. But such action won’t be adequate. His comprehensive plan also seeks to increase infrastructure investments. In an effort to enhance their transportation efficiency, he plans on increasing the petrol tax by NZ6 cents per liter. Other spending will include school building programs because he is ‘determined to build on these strengths so that when the world starts growing again, New Zealand can be running faster than the countries we compete with,” he said.

– LG

Filed under: Global Economics, World, , , , , , , , , , , , , , , , , ,

Australia Plans to Cut Skilled Visas by 14% as Labor Market Weakens

Australia’s Immigration Minister, Chris Evans, has said that the nation will be reducing the number of skilled migrants visas by 18,500. This will be the first of such cuts in 10 years as the domestic labor market weakens to 5 year highs. Such a move will shrink the intake of skilled visas by 14% to 115,000.

In February, the unemployment rate leapt to levels last seen in Oct. 2004. The figure jumped by 0.4% points to 5.2% after economists had expected the figure to print to only 5.0%. The second month of the year also saw 53.8K full-time jobs converted into 55.6K part-time ones, signaling deeper labor-market weakness.

Evans told the Australian Broadcasting Corp. radio station that “we don’t want people coming in who are going to compete with Australians for limited jobs.”

The actions taken by the country’s immigration board may bolster inflation. In the final quarter of 2008, general consumer prices actually fell by -0.3%; the country felt the effects of deflation. Now, since there will be less workers available to meet the labor needs of job providers, employers will need to bid up the price of labor. As this happens the extra cost of labor is likely to be transferred to the cost of goods sold to the public. Hence inflation may rise.

This may sound good in theory, but since the visa cuts will only apply to skilled workers, the effect of such higher prices may only be felt in those goods which employ such people. Such goods may include electronics, research and development, and financial services.

Hence, the visa cuts might not actually help the common Australian, but instead aid those who are highly educated and are well-off on a long-term basis.
– LG

Filed under: Global Economics, Politics, , , , , , , , , , , , , , ,

China’s Deflation Has Officially Arrived As Prices Fall 1.6%

China’s Consumer Prices declined by -1.6% in February from the year prior as the global economic contraction reduced demand for the Asian giant’s good. This is the first time since Dec. 2002 that prices in the world’s third-largest economy decline. Producer Prices led the decline; the cost of manufacturing products has been falling consistently since August, ultimately plummeting by -4.5% in January. The last time wholesale prices fell by this much was in Mar. 1999.

It was reported earlier today that China plans to reduce export taxes to zero. Such a move would allow supply pressures to ease domestic prices upward. As export taxes are reduced, the price for such goods decreases to those living abroad. When prices decrease, they tend to consumer more. While this is happening, those living in China see less supply of these products on their store shelves. And as supply decreases, prices increase.

On a similar note, Home Prices fell by 1.2% in February, marking it the steepest decline since the Chinese government began keeping track of the data in Aug. 2005. This is the third straight month that housing prices fall.

– LG

China's CPI Since 1999; Source: Bloomberg; Prepared by Luis Gil

China's CPI Since 2000; Source: Bloomberg; Prepared by Luis Gil

China's CPI Since 1999; Source: Bloomberg; Prepared by Luis Gil

China's PPI Since 1999; Source: Bloomberg; Prepared by Luis Gil

Filed under: Global Economics, World, , , , , , , , , , ,

Australian Economy Shrinks For First Time Since 2000

Australia’s economy contracted for the first time since 2000. It shrunk by -0.5% which was far more than the expected growth of 0.2%. This brings the economic growth rate in 2008 to 0.3% from 1.2%. Interestingly enough, over the last 5 days the expectation for Australia’s growth rate rose from 0.4% to 0.5% on the quarter and from 1.1% to 1.2% YoY.

Yesterday, the Reserve Bank of Australia left rates steady for the first time in seven months, at 3.25%. Governor Glenn Stevens cited the superior performance of the monetary transmission mechanism as reason for holding off on further rate cuts. He stated that “demand has not weakened as much as in other countries” and that the “Australian financial system remains strong” because of the fluid nature in which end-users are beneficiaries of central bank liquidity easing.

At it’s Feb 3rd meeting, the central bank slashed the overnight cash rate by 100 basis points; the lowest level in 45 years. The accompanying statement said that the combination of liquidity easing with fiscal stimulus would “help to cushion the economy from the contractionary forces coming from abroad.”

The Australian Dollar plummeted 45 pips against its U.S. counterpart in the seconds following the release of the data.

– LG

Filed under: Economics, World, , , , , , , , , , , , , , ,

Reserve Bank of Australia Holds Rate Steady For First Time in Seven Months; Currency Jumps

The Reserve Bank of Australia held its overnight cash rate at 3.25% despite expectations calling for a 0.25% cut in the main policy rate. For the first time in seven months, the central bank left rates unchanged after an aggressive rate slashing campaign that began in August. Since then, the RBA has sought to prop the ailing south-pacific economy by easing liquidity. Throughout those seven months, the bank slashed the rate by 400 basis points from 7.25% to 3.25% in early February.

Expectations, however, deviated quite substantially. Of the 18 economists that Bloomberg had surveyed, four called for the bank to hold the rate steady while seven expected a 50 basis point cut. The remaining seven favored a 25 basis point move down.

The Australian Dollar jumped 48 pips against its U.S. counterpart in the seconds following the announcement.

Interestingly enough, the pair also spiked just seconds before the rate announcement, implying that some institution was made aware of the decision BEFORE it was made public.

AUD/USD Jumpes Seconds After Rate Decision; Prepared by Luis Gil using FXTrek Intellichart

AUD/USD Jumpes Seconds After Rate Decision; Prepared by Luis Gil using FXTrek Intellichart

Filed under: Global Economics, , , , , , , , , , , , ,

Australian Retail Sales Unexpectedly Jumped in January

Australian retail sales rose unexpectedly in the month of January. At 0.2%, the rise in sales aggressively overshot expectations of a -0.5% decline in the figure. Spending was bolstered by the government’s distribution of A$8.9 billion ($5.6 billion) in cash grants to families as a result of the stimulus package passed in late January. Prime Minister Kevin Rudd announced that they would continue distributing more cash. In fact, another A$12.7 billion will be sent to lower and middle-income families and individuals.

The greatest gains in spending came in the form of eating out at cafes and restaurants. This sector of the overall metric rose 2.3%, but hasn’t shrunken since October. On the contrary, spending on household goods fell a substantial 4.0%, lending clues as to the underlying sentiment being felt among the public. That is, spending on durable (big-ticket) goods like washers, refrigerators, and television has probably also fallen. Furthermore, this could imply that people are reluctant to purchase such items because of the fear they may have over losing their house due to delinquencies in mortgage payments.

– LG

Filed under: Global Economics, World, , , , , , , , , , , , ,

Australian Wages Unexpectedly Accelerate, Largest Growth Rate in 11 Years

Australian wages accelerated unexpectedly, by the largest amount in at least 11 years in the final quarter of 2008. Economists had forecast the data to come out 25% lower, at 0.9%. On a yearly basis, wages grew 4.3% from the end of 2007 after economists had expected them to rise only 3.8%. With hourly wage costs rising 1.2% in the last three months of 2008, inflation expectations may be on the rise. This would reduce the pressure on the Reserve Bank of Australia to slash rates. The Australian Dollar jumped 13 pips in the minutes following the data release. – LG

Filed under: Global Economics, World, , , , , , , , , , , ,

RBA’s Stevens: Stimulus Effects Seen at Year’s End, More Cuts If Needed

Reserve Bank of Australia Governor Glenn Stevens is a realist to say the least. His pessimistic outlook over the near-term failed to be outnumbered by his longer-term outlook of his engineered economy. In a semi-annual testimony to the governing parliament, Australia’s monetary chief Stevens stated that “no policy response could stop near-term weakness.” He further added that the South-Pacific nation would be suffering dearly in the coming 9 months as “bad debts” continued to rise. Unfortunately for the Reserve Bank, which began slashing rates in early June from 8.25% to 3.25% at the end of January, the effects of monetary easing have only begun, the Governor stated.

China

Stevens addressed optimism over China’s economy. He went so far as to say that the Asian behemoth has yet to fully realize its economic strength. Indeed, their “emergence hasn’t finished,” he professed. His strong belief that trade with China will drive his economy leads him to believe that the Australian economy will begin to recover in the following year.

Policy

Finally, Stevens pointed out that the bank will cut rates if needed. But as he pointed out, the effects of the fiscal stimulus, which was signed into law last week, will not be felt until the end of the year. Chances are, that with such a lagged fiscal policy effect, that the RBA will cut in the near-term. Despite the substantial downside potential for overnight rate cuts, Stevens noted that there was little chance that they would be adopting a zero interest rate policy. In fact, rate cuts can get to the point of “little impact.”

On a positive note, the Governor stated that half of Australian mortgages are actually ahead on payments and that interest rate cuts have worked best in his country thus far. – LG

Filed under: Global Economics, World, , , , , , , , , , , , ,

Reserve Bank of Australia Hints at End of Year Recovery, Minutes Show

The AUD/USD Has Plummeted As Much As -39%

The AUD/USD Has Plummeted As Much As -39%

In its Feb. 3rd meeting, the board of the Reserve Bank of Australia slashed the overnight cash rate by 100 basis points to the lowest in 45 years, to 3.25%. With the help of fiscal stimulus, monetary policy has been able to provide much of the necessary liquidity required to jump-start the economy. Indeed, the minutes of the most recent RBA meeting expressed optimism over the medium-term outlook for the Australian economy.

Liquidity easing, combined with the government’s fiscal stimulus, will probably “help to cushion the economy from the contractionary forces coming from abroad,” the minutes said. The effort of both the Treasury and the Reserve will “work to establish conditions conducive to stronger demand later in the year.”

A positive short-term outlook is less likely as the stimulus “would take time to be effective and could be expected to have only a modest effect on the near-term outlook.”

The Australian currency has fallen as much as 38% against the U.S. Dollar since it reached its high on Jul. 15 of 0.9850. From its low on Oct. 27th, the Australian Dollar has rebounded by 7.25% against the greenback. -LG

Filed under: Global Economics, World, , , , , , , , , ,

Stimulus Plan Clears Australia’s Senate; A$42 Billion

In a 30-28 vote, Australia’s Senate passed Prime Minister Kevin Rudd’s second attempt at a A$42 billion ($28 billion) stimulus package after being thwarted off yesterday. The plan, which focuses on cash distributions to families and working people along with infrastructure spending, aims to prevent the nation’s first recession since 1991. Indeed a$12.7 billion will be directly redistributed to the public while A$28.8 billion will be set for school and environmental construction.

Rudd, whose plan was initially rejected yesterday, was forced to divert a greater portion of the money towards environmental projects and to reduce cash distributions in order to garner additional support.

Initially leading the opposition, key independent senator Nick Xenephon warmed to the proposition, stating that he is “pleased to say I believe we have been able to reach a compromise.” Leading up to the second attempt of passage, Treasurer Wayne Swan stated that “we are prepared to act in the national interest.”

Had the package been defeated a second time, the entire notion would have been abandoned.

Filed under: Global Economics, World, , , , , , , , , ,

Australian Unemployment Makes Greatest Leap Since Feb. 2006

Australian data revealed a labor market that has weakened more than expected during the month of January. Indeed, the unemployment rate rose to 4.8%, the highest level since June 2006. Economists had expected the metric to jump to only 4.7%. While the unemployment rate rose to the highest number since mid-2006, the gain in the rate was the strongest since February 2001. The number, substantially larger than that of January’s, which came in at 4.5%, continues to foreshadow the country’s fourth quarter gross domestic product results. Q3 GDP remained in positive territory, albeit at only 0.1%.

Despite the pessimistic outlook that the jobs figure presents, the dynamic structure of the labor market provides key insight. January saw a decline of 32.6K part-time jobs met with 33.7K full-time ones. This move contrasts December’s; 47.7K full-time jobs were converted into the same amount of part-time ones. Overall, employment actually grew by 1.2K after economists had forecast a net loss of 18.0K positions. – LG

Filed under: Economics, Global Economics, , , , , , , ,

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