NZ Economy- why interest rates will go higher
A couple of articles this morning which indicate that there will be at least one more rate hike, barring NZ dollar issues (eg Uridashi) becoming very unpopular...
High cost fails to hit thirst for petrol
07.11.05
By Chris Daniels
Record high oil prices have barely made a dent in New Zealanders' growing petrol consumption. In late August the price for a litre of fuel at many pumps hit $1.50, prompting an uncommon decline in petrol sold, but since then prices have fallen to about $1.40 a litre and consumption is back to normal. "In August and September, when prices hit their peak, there was a two-week period when demand did drop off a couple of per cent. But it appears in October that as the price has come down, behaviours have gone back to normal," said Peter Griffiths, managing director of BP New Zealand. "My sense is that when the number got that high and people filled their cars, they got a surprise - what do you mean it costs $100 to fill my car? My God! Or 'I always put $20 - now I get less for it and I have to come back more'." One of BP's rivals, Shell, reports a similar experience, with volumes falling when prices went to their most recent peak in September. Steven Bartholemusz said Shell NZ had not experienced a "significant decline in fuel demand" due to the recent high prices. "We have seen steady growth throughout the year. In July and August the industry as a whole did see a slight decrease in industry volumes and this dropped further in September. We are beginning to see a pick up in volumes." Griffiths said BP's profits this year would probably be down, but not dramatically. More than a third of BP's income in New Zealand came from sources other than fuel sales. This included its Wild Bean cafes and other retailing at its petrol stations. Griffiths accepted that BP's parent company was reaping the rewards of the high oil prices. "If you own an oil well today, you're doing well," he said. "And BP produces a couple of million barrels of oil a day from around the world. They are selling that oil at something like the numbers we hear quoted." These profits do not come trickling down from head office though, as BP locally last year made a $53 million after-tax profit. This was a 12 per cent return on its $500 million of capital invested - including its stake in the Marsden Pt oil refinery. Around half of this profit, $26 million, was re-invested into the New Zealand business. "The downstream oil business in New Zealand, its a tough business, you can't sit on your hands. We turned over nearly $2 billion - and we made $54 million," he said. "We've got $550 million invested, so it's okay, it's better than some businesses, not as good as others." Recent high prices meant business as usual, he said. "When the price is high it's usually because we have to pay more for our input material - more for our crude, more for refining and more for shipping." Westpac chief economist Brendan O'Donovan last month said the doubling of oil prices since 2002 was likely to have significant effects on economic activity in New Zealand. Westpac said the price rises had reduced economic growth by 0.3 percentage points or $420 million in the past year.
Many still expect house rises
07.11.05
By Brian Fallow
Confidence that the housing boom has further to run is undimmed, despite the prospect of higher interest rates, ASB Bank's quarterly survey of housing confidence has found. Of 600 people surveyed between August and October, 45 per cent expected prices to go higher while 15 per cent expected a fall. The net 30 per cent expecting higher prices is an increase from a net 20 per cent in the three months to July. The survey's margin of error is 4 per cent. And confidence did not flag as the quarter wore on, despite the Reserve Bank raising the official cash rate and a sharp rise in interest rate expectations: in the month of October a net 31 per cent expected higher prices, in line with the average for the quarter. ASB chief economist Anthony Byett said the rise in price expectations reflected renewed activity in the market as it shook off its seasonal winter blues. "Activity levels increased faster than usual over September and October and properties are selling faster," he said. The number of sales reported by the Real Estate Institute in September was up 17 per cent on September last year and the national median home price of $290,000 was 16 per cent higher. And ASB's lending figures and the anecdotal evidence both pointed to activity and upward price pressure having continued last month, Byett said. The pick-up makes the indicators of affordability, four years into the boom, even more stretched. "House prices are even higher now relative to income, so too are interest payments, and that's before people roll into fixed rates that are already higher and still rising," Byett said. "In other words, the housing market and the household sector in general are more at risk to future shocks. And 2006 is shaping up for a tougher economic climate. It's clearly a time for prudence." Household debt in September was 15 per cent higher than in September last year and the increase in the month was the fastest for two years. That is in spite of rising interest rates and the ratio of interest costs to household incomes being already at historically high levels. Collectively households spent about 10.5 per cent of their income servicing debt, Byett said, when the normal ratio over the past 10 years was between 8 and 9 per cent. And those figures are diluted by the fact that only one household in three is owner-occupied with a mortgage. Reserve Bank Governor Alan Bollard said on Wednesday that about 10 per cent of households with mortgages were deeply in debt, spending more than half their after-tax incomes servicing the mortgage. They were vulnerable to rising interest rates, falling house prices or a weaker job market. Byett said new borrowers were undeterred by the mortgage rates on offer at the moment. Borrowers who had taken out fixed rate loans two years ago between 6 and 7 per cent were rolling into rates close to 8 per cent. But in any month only a small proportion of borrowers were in that position.
High cost fails to hit thirst for petrol
07.11.05
By Chris Daniels
Record high oil prices have barely made a dent in New Zealanders' growing petrol consumption. In late August the price for a litre of fuel at many pumps hit $1.50, prompting an uncommon decline in petrol sold, but since then prices have fallen to about $1.40 a litre and consumption is back to normal. "In August and September, when prices hit their peak, there was a two-week period when demand did drop off a couple of per cent. But it appears in October that as the price has come down, behaviours have gone back to normal," said Peter Griffiths, managing director of BP New Zealand. "My sense is that when the number got that high and people filled their cars, they got a surprise - what do you mean it costs $100 to fill my car? My God! Or 'I always put $20 - now I get less for it and I have to come back more'." One of BP's rivals, Shell, reports a similar experience, with volumes falling when prices went to their most recent peak in September. Steven Bartholemusz said Shell NZ had not experienced a "significant decline in fuel demand" due to the recent high prices. "We have seen steady growth throughout the year. In July and August the industry as a whole did see a slight decrease in industry volumes and this dropped further in September. We are beginning to see a pick up in volumes." Griffiths said BP's profits this year would probably be down, but not dramatically. More than a third of BP's income in New Zealand came from sources other than fuel sales. This included its Wild Bean cafes and other retailing at its petrol stations. Griffiths accepted that BP's parent company was reaping the rewards of the high oil prices. "If you own an oil well today, you're doing well," he said. "And BP produces a couple of million barrels of oil a day from around the world. They are selling that oil at something like the numbers we hear quoted." These profits do not come trickling down from head office though, as BP locally last year made a $53 million after-tax profit. This was a 12 per cent return on its $500 million of capital invested - including its stake in the Marsden Pt oil refinery. Around half of this profit, $26 million, was re-invested into the New Zealand business. "The downstream oil business in New Zealand, its a tough business, you can't sit on your hands. We turned over nearly $2 billion - and we made $54 million," he said. "We've got $550 million invested, so it's okay, it's better than some businesses, not as good as others." Recent high prices meant business as usual, he said. "When the price is high it's usually because we have to pay more for our input material - more for our crude, more for refining and more for shipping." Westpac chief economist Brendan O'Donovan last month said the doubling of oil prices since 2002 was likely to have significant effects on economic activity in New Zealand. Westpac said the price rises had reduced economic growth by 0.3 percentage points or $420 million in the past year.
Many still expect house rises
07.11.05
By Brian Fallow
Confidence that the housing boom has further to run is undimmed, despite the prospect of higher interest rates, ASB Bank's quarterly survey of housing confidence has found. Of 600 people surveyed between August and October, 45 per cent expected prices to go higher while 15 per cent expected a fall. The net 30 per cent expecting higher prices is an increase from a net 20 per cent in the three months to July. The survey's margin of error is 4 per cent. And confidence did not flag as the quarter wore on, despite the Reserve Bank raising the official cash rate and a sharp rise in interest rate expectations: in the month of October a net 31 per cent expected higher prices, in line with the average for the quarter. ASB chief economist Anthony Byett said the rise in price expectations reflected renewed activity in the market as it shook off its seasonal winter blues. "Activity levels increased faster than usual over September and October and properties are selling faster," he said. The number of sales reported by the Real Estate Institute in September was up 17 per cent on September last year and the national median home price of $290,000 was 16 per cent higher. And ASB's lending figures and the anecdotal evidence both pointed to activity and upward price pressure having continued last month, Byett said. The pick-up makes the indicators of affordability, four years into the boom, even more stretched. "House prices are even higher now relative to income, so too are interest payments, and that's before people roll into fixed rates that are already higher and still rising," Byett said. "In other words, the housing market and the household sector in general are more at risk to future shocks. And 2006 is shaping up for a tougher economic climate. It's clearly a time for prudence." Household debt in September was 15 per cent higher than in September last year and the increase in the month was the fastest for two years. That is in spite of rising interest rates and the ratio of interest costs to household incomes being already at historically high levels. Collectively households spent about 10.5 per cent of their income servicing debt, Byett said, when the normal ratio over the past 10 years was between 8 and 9 per cent. And those figures are diluted by the fact that only one household in three is owner-occupied with a mortgage. Reserve Bank Governor Alan Bollard said on Wednesday that about 10 per cent of households with mortgages were deeply in debt, spending more than half their after-tax incomes servicing the mortgage. They were vulnerable to rising interest rates, falling house prices or a weaker job market. Byett said new borrowers were undeterred by the mortgage rates on offer at the moment. Borrowers who had taken out fixed rate loans two years ago between 6 and 7 per cent were rolling into rates close to 8 per cent. But in any month only a small proportion of borrowers were in that position.
posted by Prognosian | 9:29 am
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