Economists gloomy about how far dairy prices will recover 24 Aug 2015
Fiona Rotherham
Related articles
- NZ consumers grow more upbeat, may resume spending Business
- Knowles quits as CEO of KiwiBank Business
- NZ migration bolstered by British invasion Migration
- Sludge Report #192: The Naked Budget Columns
- Budget 2010 – Building the Recovery News
- NZ manufacturing activity reaches highest since 04 Business
- NZ dollar hits 22-month high vs euro Business
- Unemployment rate falls from 7.1 to 6 percent Recruitment
- OceanaGold finds new gold deposits at Fraser mine Business
- Transpower gets go-ahead for $170m SI upgrade Business
Economists gloomy about how far dairy prices will recover
Aug. 24 (BusinessDesk) - The outlook for dairy prices remains dire in the near term and will force the Reserve Bank to further cut interest rates this year, said economists at an Auckland conference, who collectively had a doom and gloom outlook for the New Zealand economy.
Deutsche Bank chief economist Darren Gibbs said at the Standard & Poor's economists breakfast that the only positive in the near term for dairy prices was the risk of a drought this summer, due to El Nino weather patterns.
“It would be good for dairy prices but crucify some farmers in the industry,” he said.
ANZ Bank New Zealand senior economist Sharon Zollner said the dairy industry had mistaken cyclical strength for long-term structural strength. China’s share of New Zealand’s dairy exports has fallen by 36 percent to 18 percent, with other countries taking up the slack at bargain-basement prices, she said.
Zollner doesn’t see a sharp rebound in supply and demand, with long-term dairy prices unlikely to return to previous levels.
“A lot of these factors have been cyclical but there is a possibility we have over invested in the dairy sector,” she said.
Gibbs said the increase in tourism and education exports is helping offset some of the economic downturn from dairy and he’s expecting that trend to continue although we haven’t been able to monetise the tourism boom that well.
“Tourism is a low productivity business and extremely labour intensive and there are environmental issues as well. It has its limits,” he said.
All the economists expect the Reserve Bank to make further cuts in the official cash rate from October to as low as 2.25 percent due to slowing economic growth.
Ongoing low commodity prices are more likely to drop the value of the New Zealand dollar than lower interest rates, said First NZ Capital director Chris Green, who predicted the kiwi dollar would fall below 60 US cents. Gibbs thinks the kiwi dollar will go to as low as 50 US cents in the next two years and to around 72 Australian cents from just under 90 Australian cents now.
Most of the economists expected the US Federal Reserve will start hiking interest rates in December, after earlier expectations it would do so next month, amid signs of a faltering Chinese economy.
“We had the biggest sharemarket fall in 20 years in the US last Friday and China remains a risk," said Gibbs. "There is a lot of nervousness out there."
Zollner said quantitative easing was easier to get into than out of.
“The world economy has been on life support for the last six years. It’s alive but it’s not kicking. What happens when that stimulus is withdrawn? Can we crawl out of it? That’s the Fed plan but it’s not obvious we can.”
S&P chief global economist Paul Sheard said the US’s end to quantitative easing has been the most telegraphed move in central banking history and he expects a slow ascent after a move in December.
“I don’t expect this process will upset the global growth apple cart,” he said.
But what happens in China could really move the needle on global growth and he’s forecasting Chinese growth of around 6.5 percent there this year.
When asked about the Auckland housing bubble, Sheard said any housing bubble will eventually burst. The trigger is usually an interest rate adjustment but policymakers have learnt from past mistakes and the new macro-prudential tools mean monetary policy is no longer the only tool.
He said was surprised the government hasn’t tracked foreign buyers in the Auckland market, given the emerging middle class in China and reforms that are allowing them to shift more of their money out of the country.
“You see this in New York, London and Sydney where it is natural for them to hedge their risk and buy into an attractive market. It’s easier to state the problem than it is to fix it,” he said.
CoreLogic research director Jonno Ingerson said the heat in the Auckland property market was likely to continue, given not enough new housing is being built to meet demand and the growing population. Despite a big rise in consents, some developers were not building because they were struggling to make money out of it.
He said although property prices in Auckland have risen 18 percent in the past year, a Chinese buyer paying in their own currency would be paying 10 percent less year on year.
“That makes property in Auckland pretty attractive for people not spending New Zealand dollars.”
But Ingerson doesn’t think foreign buyers are a massive part of the market, with price increases fuelling speculation by local owners who “now have choices the rest of New Zealand don’t”.
He said the Reserve’s Bank new macro-prudential tools, or government plans to enforce a capital gains tax on investors who sell within two years, will have only a temporary impact, if any, on the Auckland market. Nor will lower interest rates “put another log on the fire because the fire is already raging.”
The only two things likely to dampen demand were more supply and a major drop in confidence about the economic outlook, he said.
“What will happen to drive the Auckland market down will have to be something spectacular,” he said.
(BusinessDesk)
News
Hilary Timmins' Award-Winning UK Documentary Series To Inspire NZ Students
29 Jun 2020 Education
Dream Catchers, produced and directed by Hilary Timmins, celebrates the success stories of more than thirty inspirational New... more
New Zealand reaffirms support for Flight MH17 judicial process
7 Mar 2020 News
Ahead of the start of the criminal trial in the Netherlands on 9 March, Foreign Minister Winston Peters has reaffirmed the need to... more
Business
NZ Government's Economic package to fight COVID-19
17 Mar 2020 Business News
The Coalition Government has launched the most significant peace-time economic plan in modern New Zealand history to cushion the... more
NZ Government announces aviation relief package
19 Mar 2020 Business News
Transport Minister Phil Twyford today outlined the first tranche of the $600 million aviation sector relief package announced earlier... more
Living
Diversity was Key at New Zealand Trade Tasting in London
6 Jun 2022 Food & Wine
New Zealand Winegrowers Annual Trade Tasting was recently held in London, on Wednesday 4 May, in Lindley Hall.
It was the first... more
Kiwi author stuns Behind the Butterfly Gate
12 Jan 2022 Arts
Hidden behind the Butterfly Gate is where the secret has been kept for 76 years...
New Zealand writer Merryn Corcoran’s... more
Property
Fairer rules for tenants and landlords
17 Nov 2019 Property
17 NOVEMBER 2019
The Government has delivered on its promise to the over one million New Zealanders who now rent to make it fairer... more
New Zealand Government will not implement a Capital Gains Tax
17 Apr 2019 Property
The Coalition Government will not proceed with the Tax Working Group’s recommendation for a capital gains tax, Jacinda Ardern... more
Migration
Boosting border security with electronic travel authority – now over 500,000 issued
19 Nov 2019 Migration
19 NOVEMBER 2019
We’ve improved border security with the NZeTA, New Zealand Electronic Travel Authority, which helps us to... more
Christchurch reinstated as refugee settlement location
18 Aug 2018 Migration
18 AUGUST 2018
HON IAIN LEES-GALLOWAY
The announcement that Christchurch can once again be a settlement location for refugees... more
Travel
Gallipoli Anzac Day services cancelled
19 Mar 2020 Travel & Tourism
The New Zealand and Australian Governments have announced this year’s joint Anzac Day services at Gallipoli will be cancelled... more
New Zealanders advised not to travel overseas
19 Mar 2020 Travel & Tourism
New Zealanders advised not to travel overseas
more
Sport
The Skipper's Diary: Sir Richard Hadlee honouring his father and NZ's Forty-Niners
27 Oct 2019 Cricket
NZNewsUK London Editor Charlotte Everett spoke to Sir Richard Hadlee about why he’s chosen to publish his father’s... more
PREVIEW: All Blacks v England semi-final
26 Oct 2019 Rugby
The two most convincing quarterfinals winners are set to square off in a semifinal showdown for the ages when the All Blacks meet old... more
Columns
Gordon Campbell on the Gareth Morgan crusade
11 Nov 2016 Opinion
Gordon Campbell on the Gareth Morgan crusade
First published on Werewolf
The ghastly likes of Marine Le Pen in France and Geert ... more
Gordon Campbell on the US election outcome
10 Nov 2016 Opinion
Column - Gordon Campbell
Gordon Campbell on the US election outcome
Well um.. on the bright side, there (probably)... more
Kiwi Success
Congratulations to Loder Cup winner
26 Sep 2018 People
25 SEPTEMBER 2018
The Loder Cup, one of New Zealand’s oldest conservation awards, has been awarded to Robert McGowan for 2018... more
Appointments to New Zealand National Commission for UNESCO
16 Aug 2018 Appointments
16 AUGUST 2018Appointments to New Zealand National Commission for UNESCO
HON JENNY SALESA
Associate Education Minister Jenny Salesa is... more
Recruitment
Historic pay equity settlement for education support workers
14 Aug 2018 Recruitment
14 AUGUST 2018Historic pay equity settlement for education support workers
RT HON JACINDA ARDERN
HON CHRIS HIPKINS
Prime Minister
The... more
Historic pay equity settlement for education support workers
22 Aug 2018 Recruitment
14 AUGUST 2018Historic pay equity settlement for education support workers
RT HON JACINDA ARDERN
HON CHRIS HIPKINS
Prime Minister
The... more