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The Outlook for 2014

Predicting the future is difficult but reviewing economic trends and markets daily does give you some insight. 2014 is an election year and a time where we see politicians give positive direction backed with policies.  2013 has seen an improving position, economically, with growth far higher than most OECD countries. My read on our outlook for 2014, is this growth momentum will continue.

There remains continued speculation and media scare tactics (in my opinion) on interest rate hikes to slow our economy, which is backed by the current Money Market Trends. There are some fundamentals, which I believe, need to continue their improving trend, to make an Interest Rate hike more certain. Unemployment remains high, on a historical basis, at 6.2%, although the current trend is positive (down 0.2% with 27,000 new jobs and a reduction in unemployed by 4,000 (Household Labour Force Survey, September 2013)).

Our dollar continues to remains popular based on our economic growth, and high demand for the Goods and Services we produce.  Our Economic Growth, compared to other countries (particularly the US and UK) is strong which is increasing our currencies popularity.  This, combined with high Interest Rates (NZ has one of the highest Interest Rates Mixes of OECD countries) makes our economy a popular destination for investors. An Interest Rate rise will fuel our already high exchange rate, particularly when Australia, is rumoured to be reducing their Interest Rates.

Inflation rates at 1-2% for 2014 look likely. I also point out the limited data we have, from the recent Reserve Bank Regulation, on higher Lending Value Loans, and what this is doing to the Housing Market. Initial indications, is that it is slowing sales volumes, and people not coming into this market will have a flow on impact up the price chain.

 

In summary, I am predicting 2014 will be better than 2013 economically. There is likely to be Interest Rate rises although not to the extent some commentators are stating, and I believe likely to be later in 2014 than earlier. The timing and extent of the rises will depend on the speed of our economic momentum, and the performance of our major trading partners.

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