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Economic Weekly: GDP sidelined as global rates battle royale rages

Last week’s GDP figures came and went with little fanfare. Barely a zephyr rippled through financial markets as Stats NZ reported the NZ economy went backwards to the tune of 1% in the fourth quarter of 2020. The currency held all of its recent gains and interest rate markets went on pricing a >50% chance of an RBNZ rate hike in February. Admittedly, there were probably a few on a Thursday go-slow in the wake of Te Rehutai’s Wednesday exploits. But still.

It’s a sign of the times that such a weak set of data, indeed much weaker than expected, were largely ignored. And yet, it was the correct reaction in our view. There was always going to be some chop as the economy re-set itself following the 14% post-lockdown surge of Q3. And there’s every chance we see another negative quarter in Q1 as the closed borders continue to weigh heavily on some sectors. While this would mark another ‘technical recession’ (awful language we know, particularly for those feeling its effects most acutely), our broader economic and interest rate view hasn’t changed. 2021 still looks like a year of flattish consolidation for the economy, with 2022 being “our year”.

The more influential news last week was actually offshore. The arm wrestle between markets keen to price higher and steeper yield curves, and central bankers trying to hold them back, stepped up a notch. The global reflation story has been the big theme of 2021 and, as the chart shows, is a key driver of the uplift we’ve seen in NZ wholesale interest rates. Indicative of such, 10-year swap yields closed last week around 10bps higher, despite the weaker NZ economic data.

We saw central banks in Australia, the US, and the UK all trot out similar iterations of the tightly clung-to line that interest rates are going nowhere until they are totally convinced inflation and/or employment targets are being met, not just on a forecast basis, but in real-time. This is occurring even as central banks continue to put through chunky economic forecast upgrades, as both the BoE and Fed did last week. Only one side can ultimately win the arm wrestle of course, and our sense is that markets probably have the upper hand. This underpins our forecasts for NZ wholesale yields continuing to rise, on a trend basis.

It’s more famine than feast on the economic data front this week. However, we’ll be keeping our eyes peeled for government announcements on whether an April Trans-Tasman travel bubble will go ahead, as well as a package of measures designed to address rampant house price inflation. mike.jones@asb.co.nz

 

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Jane Turner

Senior Economist

Originally hailing from sunny Nelson, Jane moved to Auckland to join the ASB team in 2008.  As Senior Economist, Jane's main focus is co-ordinating the team’s macro-economic forecasts.  In this key role, Jane was thrilled by the team’s twice consecutive win of the Consensus Economics Forecast Accuracy award.   

During her decade-long career in economic forecasting, Jane has gained a thorough knowledge of the New Zealand economy.  Her current focus is on New Zealand GDP growth, including both manufacturing and the construction sectors.  She has spent time forecasting most sectors of the economy, including inflation, trade, housing, labour and financial markets.

Prior to joining ASB, Jane honed her macro-economic forecasting skills at the Reserve Bank of New Zealand.  Jane is a qualified scarfie, attending Otago University and graduating with a Bachelor of Commerce in Economics with 1st class honours.  In 2014, she took a career break from ASB to travel the world and learn to snowboard.

Mark Smith

Senior Economist

Mark joined ASB in 2017, with over 20 years of public and private sector experience working as an economist in New Zealand and the UK.

His resume includes lengthy stints at ANZ and the Reserve Bank of New Zealand, and he has also worked at the Bank of England, HM Treasury and the New Zealand Transport Agency. Mark's areas of specialisation include interest rate strategy, macro-economic analysis and urban economics.

Born and bred in the Waikato, Mark studied at Waikato University where he graduated with a Master of Social Sciences, majoring in Economics.

Mark's key strengths are the ability to use his extensive experience, inquisitive nature, analytical ability, creativity and pragmatism to dig a little deeper and to deliver common sense solutions to tackle complex problems.

When not at work Mark likes to travel, keep fit and spend time with his friends and family.

Mike Jones

Senior Economist

Mike joined ASB in 2019 armed with almost 15 years of experience in applied macroeconomic and financial markets analysis.

Mike's career has been all about distilling the risks and opportunities of economic and financial market trends for business. Basically asking the "what does it all mean" question. Mike's enthusiasm and skill for drawing out practical, commercial insights from the murky world of economics has been honed over a relatively broad base of experience.

After spending the early part of his career on the tools at the Reserve Banks of both NZ and Australia, Mike had a lengthy stint at BNZ where he was NZ’s top-ranked currency strategist. His regular and topical macro research also saw him pick up several FX forecast accuracy gongs from Bloomberg.

Drawn in by the prospect of putting strategy into practice, Mike moved from Wellington to Auckland in 2013 to join Fonterra as GM Treasury Risk Management. In this role, Mike lead Fonterra’s macroeconomic research output, and was responsible for the strategy and execution of Fonterra’s foreign exchange, debt, and interest rate hedging programmes.

mike.jones@asb.co.nz