Westpac Institutional Bank Team
Westpac Institutional Bank
Developments over the past week have added to signs that momentum in the economy is dissipating, and have reinforced our expectations that a sharp slowdown in growth is on the cards over the coming year.
In our past few reports, we’ve highlighted that some of the big drivers of New Zealand’s recent economic strength have been dissipating. Developments over the past week have reinforced that message.
First up, the outlook for earnings in the dairy sector has continued to deteriorate. Global dairy prices fell another 9.3% in the latest GlobalDairyTrade auction, taking them to their lowest level in 13 years. And as in the previous auction, many prices were ‘limit down’, implying that the downward pressure on prices is likely to spill over into the next auction as well.
Given the sharp falls in global prices, Fonterra has revised its forecast milk price payout for the current season to $3.85/kg. That will be even lower than last season’s very weak outcome, and will pull export earnings down by around $1.2 billion compared to the 2014/15 season - equivalent to around 0.5% of annual GDP.
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