Matt Nolan

November NBNZ Business Outlook: Pessimism runs wild

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A couple of weeks ago the November NBNZ Business Outlook survey was release – and man was it a stinker.

The key point was the decline in own activity expectations – with a net 14% of firms expecting their own level of activity to contract!  In conjunction with the RBNZ inflation expectations number (specifically the surveys wage growth measure) this was one of the “green lights” for the massive rate cut in December.

However, I can’t get past the inflation expectation number from the Businesses Outlook, 3.7%.  This is with the economy having contracted and petrol prices collapsing.  Sure this is a slow moving measure – but it is moving in the wrong direction!

I realise that anyone reading probably cannot understand why I still care about inflation (as seen here) – but I’m afraid that can’t see a massive build up of spare capacity in New Zealand, I don’t see any “demand deficiency”, or “savings glut” (although who knows – maybe I’m suffering from recession fatigue).  Without this, all the Bank can do is focus on its mandate to keep price growth low and stable.

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Matt Nolan

Why did the RBNZ say the recession was over?

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A lot of people appear to be discussing the RBNZ’s call that the New Zealand recession is over (here, here, and here).

Now I have to admit that I do not find his call ridiculous for a few reasons:

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Matt Nolan

Do petrol prices need to fall substantially further?

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Today on Breakfast Paul Henry was stating that petrol prices are far too high, given that crude oil has fallen to $40US a barrel. His criticism was that the retail price of petrol has not fallen at the same rate as crude oil – of course this wouldn’t make much sense given that there are other cost components to the sale of fuel than just the price of crude oil.  However, I was wondering if his criticism that prices were “too high” had any merit.

Now, I don’t have any data, or any analysis to fall back on, when looking at whether the price of petrol is “fair”. However, MED does do some work on fuel prices here. Among the statistics they have a “fuel price margin” page, here. This “margin” tells us what residual is left to give to the importers, distributors, and retailers in the petrol market. Lets have a look at the graphs they provide:

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Matt Nolan

Bye bye Buy New Zealand made

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Buy New Zealand made is gone – good.

The stated aim of the campaign was to protect New Zealand jobs – but why would rejecting imports in favour of domestic production save jobs?

If we import things, we have to make more exports to pay for them!  Ultimately, trading with the rest of the world allows us to focus on what we are relatively best at, while they focus on what they are relatively best at – then we can trade and all be better off!

Chris Worthington at Infometrics has discussed this before in the Dom Post.

Of course – we can try to justify the policy on other grounds (I can only think of one that would make any sense though).  But overall I think this is Nationals first good economic policy decission – it doesn’t make up for the “40%” of Kiwisaver in NZ rubbish, but its something 😛

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Matt Nolan

Should New Zealand do anything in the face of global shocks?

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The data is changing so quickly that it gives me an intense sense of fatigue. As a result, I thought I would ask a question of our readers and rely on your cumulative intellect 🙂

Should New Zealand do anything in the face of what is primary shocks

This is a discussion type post, where I’d like you guys to tell me what you think. The aim is to “describe” the situation, and if (and what) policy could be appropriate. I will post a quick little ditty under the tab which can act as some sort of starting point I guess 🙂

BTW – even if you don’t have much to say here, say it anyway … please 😉

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Matt Nolan

Agreeing with Treasury or the Finance Minister?

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I am surprised to see Bill English slam his former department – of course it is entirely likely that the newspaper is simply exaggerating his reaction to their briefing.

The core of Bill English’s criticism of Treasury appears to be that “they aren’t thinking of ways that fiscal policy could prevent the recession”. But maybe they believe that it is not the role of fiscal policy to stabilise activity while monetary policy still has plenty of bullets left?

If that is the case then their focus on the “medium term” makes sense – doesn’t it. Well not quite.

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