Well according to Moody’s we are in the top tier of AAA rated sovereign debt (ht Market Movers).
New Zealand is “Resistant” while the USA and UK are only “Resilient” and poor old Spain and Ireland are “Vulnerable”.
Go us aye 😉
Almost unsurprisingly F&P is struggling in the current environment. Given that we are experiencing a global recession there was always going to be a huge fall off in demand for appliance products (something that hasn’t really happened in New Zealand yet interestingly).
Stuff has already put up a few articles on the event (* and *) and Bruce Sheppard has suggested a bail out. Let me just say that I am completely against a bail out.
Now, if F&P is still in a position where it will be profitable in the medium term, but drastic conditions in the credit market prevent F&P gaining any finance, I could accept the government loaning money to F&P temporarily at a high rate of interest. Bailing out F&P should not be an option – after all, what is growth promoting about forcing all of society to cover businesses mistakes?
As far as I can tell they are in trouble as their debt was denominated in foreign currency and the value of the NZ dollar collapsed. Now excuse me if I’m wrong – but isn’t this just hedging on their part. A few months ago they were complaining that the dollar was too strong and was reducing the profitability of their manufacturing. Now that the dollar is weak (improving the return on what they make) they have lost out on their debt. By denominating their debt in foreign currency they were hedging their losses stemming from a high dollar – why should we be bailing them out when the tide turns?
Update: Kiwiblog and Anti-Dismal more explicitly discuss the moral hazard problem.
The cost of a barrel of oil is down to $35US and the exchange rate is loitering around $1NZ=$0.52US. Why is fuel at $1.63? A rough and ready look at the numbers suggests approximately $1.40 to me – although with a big error band (Note: less than 20c though).
The rumours I’ve heard are:
So, does anyone have any knowledge or suggestions that they would like to share with me 🙂
Update: Paul Walker at Anti-Dismal discusses the role of consumer search in the adjustment of petrol prices.
This article from David Hargreaves on cheese prices got me thinking. He is saying that domestically produced food prices are too high.
At first I completely disagreed with, especially when he says things like:
There’s no doubt the excuse will come out about how much lower the Kiwi dollar is this year. And clearly that is a valid excuse when you talk about imported goods. But what about the goods produced at home?
This is a misnomer – as a lower exchange rate increases the return New Zealand exporters can get overseas, increasing the price New Zealander’s need to pay for a product.
However, there is another issue regarding the price of diary products in New Zealand that is important – and where the bleating about the price might make some sense: Collusion in the supermarket industry. If supermarkets are colluding on the price of diary products, the price would be higher than the socially optimal level. In this case there might be a competitive issue with supermarkets.
Do you think there is a competition issue – or do you think this is a whole lot of bleating about nothing?
David Farrar links to an article from 1 year ago – where economists were rather positive about the outlook for New Zealand. I was the same – I thought we would be out of a drought induced recession by September 2008.
But things happened that we couldn’t foresee. Lehman brother’s collapse was the issue that really turned things around.
However, even if this hadn’t happened the idea of the recession ending in September would have been wrong – as the impact of falling house prices on consumer spending was stronger than I had expected.
As MyNameIsJack said in the comments on Kiwiblog:
Economists very rarely make accurate predictions, in fact I would lay money on more meteorologists being right next week than economists. Economists are good at explaining why after the event, lousy at explaining what and when in advance.
Economists don’t have perfect foresight, but when we have the data we are pretty good at describing what has happened – sometimes 😛
