August 2014
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Economic growth set to continue Hugh de Lacy The New Zealand economy will weather the concurrent falls in the kiwi dollar and in its most significant export, milk products, without a threat to its overall strong growth, according to Bank of New Zealand chief economist Tony Alexander. The dollar may have eased back from its mid-June US88c high but it’s still at high levels by historical standards, Alexander says. “It’s only three cents off the peak so really it’s not a significant decline at all,” he says. “I think the kiwi is going to remain high for the next year and a half on the back of rising New Zealand interest rates, strong economic growth and continuing difficulties in overseas economies, plus
the probability of some recovery in dairy prices.” Around $4 billion will be knocked out of the dairy industry’s export income following the steady decline in global milk prices in the first half of this year that has seen the country’s biggest dairy company, Fonterra, slash its forecast payout to farmers from a record $8.40 per kilogram of milk solids last year, plus a 10c value-added share dividend, to just $6 this year, albeit with a projected 20-25c share dividend. Dairy exports brought in $13b last season but that will fall to around $9.7b in the current season, reflecting a nearly 30% drop in global dairy prices over the first half of this year. That’s expected to put a 1.9% dent in the country’s gross domestic product, while the falling dollar will increase the cost of imports.
But Alexander believes only minimal pain will arise from, for example, fuel price increases. “The fall in the kiwi dollar so far is nothing very consequential at all,” he says. “It’s not significant enough to cause a 20c, 30c or 40c movement in petrol prices, and I think any movement there would be rather lost in the wash.” He says that falling dairy prices were only one factor putting downward pressure on the kiwi dollar, “and if it was really going to be the driving force then we would have seen the kiwi weakening ever since dairy prices peaked.” It was always hard to know what was driving currency variations but “you would cite other data for the pace of growth of New Zealand’s economy slowing down a bit – the easing off of business sentiment, for instance”.
Other factors weighing on the kiwi would be declining retail sales figures and “some of the economic data generally pulling back. “Secondly, you’ve also had some fairly aggressive warnings about currency over-valuation from the likes of the Reserve Bank Governor and the finance minister. “Also, probably, people are just taking profit: the kiwi dollar’s been strong enough over a long period of time, so that’s a thing I would work into the decline as well.” Even so, the overall strength of the economy will ensure that the kiwi dollar continues to remain over-valued by most economic measures, and also that lower global milk prices and the reduced dairy payout will be absorbed “without too much pain”, Alexander says.
SOE listings distort IPOs Hugh de Lacy Take out the distortion created by the Government’s sale of state-owned enterprises (SOEs) and New Zealand initial public offerings (IPOs) on the sharemarket over the past year have performed pretty well as badly as they do anywhere. That’s the conclusion of sharemarket commentator Brent Sheather of Whakatane-based firm Private Asset Management, who says overall IPOs issued in the last 12 months “have done quite well because of the Government ones”. There have been nine new listings on the New Zealand Stock Exchange in the past year, more than double the average of four a year between 2005 and 2012. Globally, IPOs are regarded as near-certain losers in the short term because they are vigorously promoted to create the expectation that the float price will rise following listing. However, Sheather says New Zealand’s IPOs have bucked that perception, because of the Government’s floating of 49% of its energy assets such as Mighty River Power and Genesis, where “underlying politics” demands a float price low enough to virtually ensure sustainability and growth. “Obviously this is a short-term thing: once they’ve sold all the SOEs, that’s it, and we’ll be back to the standard IPO performance.” Sheather says the technology IPOs’ performance in particular has been “terrible”. These include Gentrack, down 11% from its listing price, Serko down 15%, Geop down 16% and SLI Systems down 28%, he said.
INSIDE
Doing their bit for recycling .... An innovative programme promoting waste minimisation is proving to be a hit with New Zealand schools, and is also helping New Zealand communities. Under the Paper4trees programme schools recycle paper and cardboard they collect and are rewarded for their efforts with native trees to plant on their sites or elsewhere in the community. Run by the Tauranga-based Environmental Education for Resource Sustainability Trust, a not-for-profit organisation and registered charity, the scheme has been joined by a massive 88% of schools and 47% of preschools. The Trust relies on funding to operate and implement the scheme, and is hoping to attract new businesses to become long-term sponsors. See story page 5
Cross Slot gains momentum - PAGE 2
Major ski area investment - PAGE 3
Helping businesses to go green - PAGE 4
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