With the full extent of the global slowdown becoming clearer, we have revised our expectations for the OCR over the next year.
The credit crunch that ravaged global financial markets is now clearly going to work on the real economy. As we detailed in our quarterly Economic Overview, published earlier this week, the implications of a weaker world economy for New Zealand include lower commodity prices, weaker export demand, and potentially tighter access to offshore funding. Increased government spending, a lower exchange rate, and aggressive easing by the RBNZ will help to soften the blow, but any substantive pickup in the domestic economy looks unlikely before 2010.
While we knew that the global growth outlook was set for another lurch lower, it’s fair to say that there was still a great deal of uncertainty as to how bad it would get. The latest Consensus Forecasts, the RBNZ’s preferred source of world growth forecasts, provide some more clarity around the matter, and it’s not a pretty picture.
New Zealand’s major trading partners are expected to grow just 1.3% in 2009, slashed from a relatively comfortable 2.6% just two months ago. North America, Western Europe and Japan are expected to contract in 2009. China is expected to slow to an 8.1% growth rate (from 11.9% in 2007), and Australia to 1.7% (from 4.2% in 2007). The RBNZ would have expected some downward revisions to these forecasts, but probably not of this size.
