New Zealand economy facing Brexit music - BNZ

Stephen Toplis, Head of Research at BNZ, lists down the Brexit implications for the New Zealand economy.

Key Quotes

“Real economy impacts limited but probably negative for meat exporters and tourism operators – at the margin; currently NZ has a meat export quota to Europe – with about half of that product currently sent to the UK – this leaves significant uncertainty about the future of this trade;

Dairy also affected by a weaker Euro making currently large EU production more competitive;

May have an adverse impact on confidence short term;

We are unlikely to change our 2016/17 real growth forecasts of around 3.0% but clearly the risks are downside;

The NZD should come under heightened downward pressure as risk rises. It is therefore no surprise that the NZD has declined. What is a surprise is that the decline is so small.

NZD weakening lots against the yen, also softer against the USD and CNY. Holding its own against the AUD, stable-to-higher against the EUR and rising aggressively against the Pound. We’d expect this process to broadly continue but watch out for Yen intervention and a down leg in the EUR.

The combination of increased risk and the ongoing strength in the NZD increases the likelihood that the RBNZ will ease in August. Note that we were already predicting a rate cut in August. After the Brexit shenanigans, it would appear that the only thing standing between an August rate cut and not, would be a VERY significant surge in housing market activity and/or a belated slump in the kiwi dollar.

Domestic bonds are rallying in line with global bonds.”