Two days ago the NZIER Quarterly survey of business opinion (QSBO) told us that firm confidence is low – but pricing intentions are high. Today the Business New Zealand performance of manufacturing index (PMI) told us that manufacturing activity was contracting for the first time since January 2006.
Both of these results are poor, so lets have a slightly closer look at them.
According to the Standard, having a free floating exchange rate puts New Zealand at the mercy of speculators – I take this to mean that the author would prefer New Zealand having a fixed (or at least semi-fixed) exchange rate.
What does having a fixed exchange rate mean? Well, if we have a fixed exchange rate we are setting the value of our dollar compared to the value of other countries currencies. In this case, we have certainty about the future export and import price of goods – which is a good thing.
However, in this case our currency is just as open to currency speculation (if not more so, as the price of the currency is fixed, making yield focused attacks more of a “sure thing”), implying that this perceived benefit does not exist – it merely moves on to influence another economic variables. In fact what it does (as long as we don’t close the country off to all capital markets) is removes New Zealand’s ability to control its interest rate (as the government has to print money at a level required to keep the exchange rate fixed) . In economics this is termed the impossible trinity.
Rental growth has been picking up in recent months, an interesting phenomenon given that house price growth has stalled, and rents and house prices have historically moved in the same direction. Some of the reasons why rents and house prices should move in the same direction are:
Ok, well why is rental growth picking up in the face of falling house prices? The common reason provided is that people that own rental property are struggling to pay the bills (with higher interest rates), and so are forced to lift rents – however does this argument make sense. Property Management in Miami-Dade & Broward County fix honest and fair pricing.
From the Hive we see that the government may be having trouble getting its mandatory biofuel regulation through parliament. Anyone that knows me will know that this makes me glad, not because I’m a climate change denialist (I’m willing to trust the experts on this one), not because I’m concerned about biofuel not having a net positive impact on carbon emissions, but because I don’t think the scheme is properly synchronized with the fact that we have a “carbon price” (through the carbon-trading scheme).
Why does setting a price for carbon mean that we don’t need to make biofuel’s mandatory? In order to explain this I’ll look at the three main criticisms I might get for this position (I’m hoping more criticisms can be added in the comments 😉 ):
People are talking insistently about recession in New Zealand. Driving the recent spate of concerns is the deterioration in consumer confidence over the last three months. All three of the indicators we follow (Colmar Brunton, Roy Morgan, and Westpac McDermott-Miller) have shown a significant deterioration in consumer sentiment since the start of 2008.
Now a small part of this decline is seasonal – however even taking this into account, there has been a worsening in consumers current financial situation and a significant fall in consumer expectations of their financial situation over the next 12 months.
Both the Hive and Roy Morgan state that the Reserve Bank needs to look at cutting rates, in order to avoid a recession we don’t need. However this raises the question, do we need a recession?
I don’t know why I was reading both the About Town blog and the Times, but I was and now I have to write about it.
Mrs Saunders raises an interesting question, namely:
If, as most people seem to be saying, New Zealand women are a bunch of sex predators who will do anything for a double vodka and almost anything for a mocha latte, how is it that prostitution is still a viable business?
This is a fair question, as she says:
After all, a double vodka costs $7.50 but full sex with a street walker costs $50 – $60 (cheaper in Papatoetoe and deals of 2 for $60 are available if you know where to look). And a mocha latte costs around $3.50 whereas the cheapest sex option, similar to the one on this vibrator panties guide, costs $20.
However, I think this is a question that we should be able to answer fairly easily with our economist hats on.