New lease of life

The New Zealand economy is carrying a substantial degree of momentum into year-end, but the two-speed nature of this upturn is becoming increasingly apparent. Domestic activity has if anything gained a fresh lease of life now that preelection uncertainty has cleared, while the deterioration in the prospects for New Zealand’s biggest export earner have yet to be fully reflected in the official data.

Business confidence rose for a second straight month in November, having bottomed out just ahead of the 20 September election. The mood was generally positive across most sectors, even in agriculture – good growing conditions and high beef prices will have gone some way to ease the pain of falling dairy prices. Firms also appear to have taken to heart the soft September quarter CPI outturn and the recent falls in petrol prices: only a net 25% of firms expect interest rates to rise in the next year, the lowest since March 2013 (a time when OCR hikes were indeed a year away).

The post-election rebound has been most obvious in the housing market, which is understandable given that what was most at stake ahead of the election was the likelihood of a less favourable tax treatment for property in the event of a change of government. We’d already seen a bounce in mortgage approvals, property listings and house sales in October, and last week we learnt that building consents, which fell 12% in September ahead of the election, recorded an 8.8% rebound in October.

The RBNZ’s weekly report on mortgage approvals shows that this momentum continued into November. The value of approvals is now running well ahead of yearago levels, a time when the speed limit on high loan-to-value ratio (LVR) was starting to bite. It’s worth noting that the share of high-LVR loans hasn’t risen meaningfully in this time – at least up until October – which means that the renewed strength in the housing market is largely being driven by low-LVR borrowers.