High interest in the GDP figures due this week, plus TikTok in the US appears to be sold to Oracle

Wide range of GDP forecasts through to March 2021

There’s a wide variance in forecasts for the New Zealand economy confirming just how challenging it is for forecasters to pick the economic performance track through to March next year due to the uncertainties arising from Covid-19.

Forecasts currently range from a relatively mild contraction in gross domestic product of 5 percent for the year to March 2021 to the gloomiest outlook predicting a drop of 11.8 percent, according to the latest consensus forecast by the NZ Institute of Economic Research.

But NZIER said the near-term growth outlook, pushed by government and central bank stimulus measures, is better than it expected with an average forecast of a 7.2 percent contraction.

It also expects to see a rebound in household spending next year due to lower mortgage rates and mortgage deferrals.

The forecast for the unemployment rate has been revised lower throughout the projection period, with NZIER expecting it to remain “persistently high” at 5.8 percent in 2023.

GDP for the June quarter is due out on Thursday.

Services sector contracts during August following Auckland lockdown

New Zealand’s services sector contracted in August on the back of the Level 3 lockdown in Auckland, according to the latest PSI reading.

The BNZ-BusinessNZ performance of services index came in at 46.9, down 7.5 points from July. A reading below 50 indicates a contraction.

“The lockdown was felt throughout the country, as no region managed to show expansion during August. Following previous patterns, a drop down to level 2 should reignite activity,” said BusinessNZ chief executive Kirk Hope.

Barring a further outbreak in a major region, Hope said he expected the sector will get back into expansion mode for the final quarter of 2020.

On Friday, the performance of manufacturing index registered a reading of 50.7 in August, down 8.3 points from July, and the lowest level since May.

Metlifecare takeover set for final shareholder approval in October

The Overseas Investment Office has approved EQT’s $1.28 billion takeover of retirement village operator Metlifecare, clearing the way for shareholders to vote on the offer at a special meeting on October 2.

The vote will require shareholders owning at least 50 percent of Metlifecare’s equity to vote in favour of the takeover, based on at least 75 percent of the shares voted. If shareholders approve the deal it will then go to the High Court for final approval.

It’s expected shareholders will vote in favour of the takeover, given Metlifecare’s largest shareholder, the New Zealand Superannuation Fund, has pledged to support the $6 per share offer despite it being near the bottom of independent valuer Calibre Partners’ range of $5.80 to $6.90 per share.

Four of Metlifecare’s directors are recommending shareholders vote in favour, but chair Kim Ellis has said they should vote against it. A sixth director abstained from making a recommendation due to a conflict of interest.

Westpac revises outlook for house prices admitting it had been too pessimistic

The problem with forecasting is that sometimes the obvious doesn’t always pan out the way you expect – as bank economists are discovering when it comes to the ever-resilient housing market.

Westpac is the latest bank to revise its outlook, now switching from down to up and forecasting a rise in house prices of 3.5 percent before the end of the year.

“The housing market has shot the lights out, far exceeding the forecast we made when Covid first broke out,” chief economist Dominick Stephens admitted in his latest update.

In March, Westpac predicted a 7 percent fall in house prices. In July it upgraded those forecasts to a 2.5 percent fall but now Stevens has all but surrendered, saying “even this is looking too pessimistic.”

Stephens said Westpac had expected the economy to shrink 3.6 percent between March and December, but he has now revised this to a decline of just 0.6 percent.

He is also less pessimistic about unemployment, forecasting a peak of 7 percent versus 9.5 percent previously.

Tourism Holdings delivers an extra bonus ahead of its full year result

Ahead of its full year result this Friday, Tourism Holdings has revised its expected profit up by an extra $2 million to around $20 million for the year ended June.

In a statement, the company said it had increased its profit guidance from $17.5 million to $19.5 million, excluding one-offs such as a $9.3 million gain from its partial exit from joint tech venture the Togo Group, which it announced in April.

The company has been under significant pressure following the closure of the borders in March, wiping out its international tourism business and leaving its campervan fleet sitting idle.

Given the expected slow recovery in the international tourism market, the company is undertaking a sale of some of its campervan fleet which is expected to raise more than $70 million.

THL shares closed up almost 13 percent, ending the day at $2.19.

TikTok deal finally done but plenty of questions remain

In a surprise twist, US tech giant Oracle is the new owner of TikTok’s US operations. Well, sort of….

After weeks of speculation about the Chinese app’s future in the US following President Donald Trump’s insistence the app be sold or shut down there, the exact nature of the agreement between TikTok and Oracle remains unclear.

Adding to the confusion, the deal is not being described as an outright sale.

The news about Oracle came after frontrunner Microsoft decided not to proceed with the purchase of TikTok’s US operations from ByteDance.

Both TikTok and Oracle remain tight-lipped about the nature of the deal with neither company offering any comment.

TikTok has exploded in popularity in the US and other western countries, becoming the first Chinese social media platform to gain significant traction with users outside its home country.

It was downloaded 315 million times in the first three months of this year — more quarterly downloads than any other app in history, according to analytics company Sensor Tower.

But Trump and other US politicians have said the app poses a threat to national security because it could be used as a spying tool by Beijing. Authorities have also expressed concern that it could be used to collect personal data on US citizens, or censor speech deemed to be sensitive by the Chinese government.

TikTok has denied those allegations. The company has said its data centres are located entirely outside China and that none of that data is subject to Chinese law.

The agreement with Oracle comes just days before a ban on TikTok in the US was scheduled to take effect.

US Fed prepares for final meeting before the November election

The US Federal Reserve will meet this week for the final time ahead of the Presidential election in early November.

Fed Chair Jerome Powell is expected to set new economic and interest rate projections through to 2023, as well as providing more detail about its new strategy, unveiled last month, where it could let inflation run higher to help the economy recover.

The central bank has already shored up the US economy by slashing interest rates to near zero and engaging in more quantitative easing buying trillions of dollars worth of bonds.

But with US lawmakers unable to agree on a further round of government stimulus the effectiveness of existing government spending appears to be wearing off, as bankruptcies surge and signs of America’s jobs recovery stalling begin to emerge.

Almost 90 percent of small business owners surveyed by investment bank Goldman Sachs said they have exhausted their funding from the Paycheck Protection Program and expect to lay off more workers in the coming months.

Two other key reports this week will be closely watched by investors.

The Organisation for Economic Cooperation and Development (OECD) presciently warned about a second wave of Covid-19 in Europe when it published the gloomiest prediction among multilateral institutions in June, forecasting a 6 percent contraction in global GDP this year. The Paris-based agency will publish a fresh outlook for the global economy on Wednesday.

Oil demand could also provide some insight into the extent of the global recovery. The International Energy Agency will release its monthly oil market report for August this week. The agency last month reduced its demand forecast for this year and next, mainly due to ongoing aviation sector weakness.

Andrew Patterson is Newsroom's Markets Editor and has worked for decades as a financial journalist, radio presenter and editor with Australia's ABC, Radio Live and NBR.

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