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Data out late this week implied that New Zealand's economy will have anything but a smooth ride this year. Exporters, in particular, face another tough year with economists picking the New Zealand dollar to stay consistently high this year.
On Friday, the kiwi was trading near US85c, with no sign it was heading down in the near future. November's trade figures, the most recent released by Statistics New Zealand, gave no encouragement. The country's trade deficit widened in November as New Zealand imported $1.18 worth of goods for every $1 of exports. The trade accounts are usually in the red in November but this was the largest November deficit since 2006, Statistics NZ said.
The monthly deficit of $700 million pushed the annual deficit to $1.5 billion, $190 million wider than in the year ended October and $550 million wider than the year ended September. The latest expansion in the deficit was in keeping with recent trends, where exports have fallen while a gradually improving domestic economy ensured imports grow.
All of that points to something New Zealanders have experienced before; a domestic-led recovery which drives up house prices, encourages higher borrowing and more spending. New-car sales figures for the year ended December indicated that householders were already doing just that - upgrading their cars by sometimes using their overdraft facilities to fund the purchase.
While the new-car sales figures were down, finance figures provided by Financial Services Federation showed that motor vehicle financing, while improving is nowhere near what it was five or so years ago. Registered motor vehicle sales, which is using property or the car as security, were only marginally up on 2011. Somehow, New Zealanders are financing their cars, and it could be by increasing an overdraft limit against the value of their homes.
Quotable Value figures showed New Zealand property values rose 5.7% last year, driven by gains in Auckland and a recovery in Christchurch. Predictions are that the housing market in the country's biggest city is set to keep climbing. New Zealand's property market regained some momentum last year after several years of being in the doldrums. The lack of supply of affordable housing has become a political issue, one which is sure to hit a chord with young people struggling to buy their first property.
The economy is unlikely to get any help from overseas this year. The European Central Bank has held its key interest rates steady and looks to keep them there for some time amid signs the euro zone debt crisis is stabilising. The lower interest rates in major global economies means investors seeking some return on their money are looking at New Zealand and Australia where central bank lending rates are significantly ahead of others, on a percentage basis.
While the Reserve Bank of Australia has room to move its interest rates down, and in fact many pick the next move will be down, New Zealand's central bank is expected to lift its rates by the end of the year from the current low of 2.5%.
If it does, the kiwi will maintain its value, or worse, increase. There was a thought the ECB would lower further its current historic low of 0.75%, bringing it more in line with Japan and the US. The criticism was that investors would then be paying banks to hold their money rather than receiving even a modicum of interest.
Some of the beneficiaries of low interest rates will be various sharemarkets with cash-rich companies providing investment income through strong share growth and dividend payouts. New Zealand companies, like many others around the world, are looking for investor interest to fund growth. Investors can get solid income payments from blue chip companies.
But emerging companies are also starting to look secure as they strengthen their balance sheets and lower their debt.
As Government ministers return, they must show greater leadership than was evident last year. The laissez-faire model adopted by Prime Minister John Key and Finance Minister Bill English needs refining. That is not an invitation to adopt a ''hands on the lever'' approach to government. But it is an offer to take on a leadership role that was missing in 2012.