Business & Investing: An international forecaster lowers its hopes for NZ economic growth, Plus: Apple exports expected to drop by $100m due to lack of pickers, smaller fruit

Fitch Solutions has downgraded its forecast for New Zealand’s economic growth outlook in the wake of last Thursday’s Statistics NZ report showing the economy shrank 1 percent in the December quarter.

It said it now expects the New Zealand economy to grow by 3.6 percent in 2021, down from its forecast of 4.5 percent previously.

Fitch highlighted a “significant slowing in recovery momentum” last quarter which is likely to result in domestic demand not being as robust as originally assumed.

The economy’s 2.9 percent contraction in calendar year 2020, compared to the previous year, was the largest annual fall on record.

Fitch is also predicting international tourism is unlikely to recover this year and said it expects border closures are likely to remain in place for most of the year.

It also noted the sporadic outbreak of Covid-19 cases in Auckland as having acted as a dampening factor on its growth outlook.

“While economic activity continues to normalise, the recovery remains tentative, and this is likely because disruptions and closures required to contain the virus outbreak still persist.”

Fitch said the risk to its forecast is tilted to the downside because of the vaccine shortage and potential for shipments to be further delayed.

Fitch Solutions is separate from the company’s credit rating division and focuses on macroeconomic forecasting and analysis.

Markets continue to wobble as investors eye continued rise in US treasury rates yields

The NZX50 lost momentum last week as local investors reacted to a bleaker than expected 1 percent contraction in GDP for the December quarter and the increasing likelihood the NZ economy will face a technical recession when the March quarter ends next week. While the final number won’t be known until June, the absence of international visitors during what would normally be the peak visitor season, as well as almost two weeks of lockdowns for Auckland during the period, suggest the quarterly GDP figure is also likely to be negative, meeting the technical definition of a recession.

Also keeping investors wary is the continued rise of the US 10-year Treasury yield which pushed higher for a seventh successive week to 1.75 percent. The world’s most closely watched interest rate surged after US Federal Reserve chairman Jerome Powell said he had no plans to raise interest rates until 2024 at the earliest, despite significantly hiking the forecast for US GDP growth to 6.5 percent for this year.

The NZX50 finished the week up 0.7 percent at 12,515, while across the Tasman the Australian sharemarket ended slightly lower at 6767, down 0.8 percent.

Oil was the big mover for the week with Brent Crude futures slumping 6.7 percent to US$64.51 a barrel after a weaker demand outlook pushed prices sharply lower. It was oil’s biggest fall since late October and saw prices drop to as low as US$61.48 a barrel last week after pushing above US$70 the previous week.

Gold made small gains for the week rising 1.1 percent to US$1744 an ounce as investors began to reconsider the outlook for the precious metal in the wake of rising inflation fears.

Bitcoin fell 1.5 percent for the week to US$58,145 after failing to take out its previous all-time high of US$61,782.

The US 10-year Treasury yield ended the week at 1.72 percent up 5.7 percent for the week having gained more than 60 percent since February 1.

The NZ dollar was buying 71.65 US cents at the end of the week, down 0.14 percent.

Apple exports slump as lack of pickers set to cost sector $100m in lost sales

NZ Apples and Pears is forecasting a further drop in its total harvest this year due to a lack of pickers.

The industry now expects the export share of the gross national crop to be three million cartons or 14 percent below 2020, representing a $95million-$100m year-on-year reduction of export earnings.

In January, the industry had been forecasting a fall of 5 percent on the 2020 harvest reflecting a shortage of available labour and significant hail events in the Nelson and Central Otago regions.

“As we near peak harvest, it has become increasingly clear that we will not achieve those initial forecasts”, NZAPI CEO Alan Pollard said.

“Labour availability on orchards and in our post-harvest operations is well short of numbers needed by the industry despite doing all we can to attract New Zealanders into work. In addition, the fruit size is coming in smaller on average than we forecast”.

Of the varieties exported, Braeburn is the most significantly impacted with a revised estimate of 1.5 million cartons, approximately 45 percent below 2020 levels.

High flying UK financier set to face liquidation

Failed UK financier Greensill Capital’s Australian arm could face as much as $5 billion in claims from creditors, including a number of German banks, prompting administrators to raise the prospect of the once high-flying company being forced into liquidation.

Greensill had been planning an initial public offering that would have valued the company at $US7 billion, a deal that would have made its Australian founder Lex Grensill and his brother multi-billionaires.

Greensill’s Australian administrators Grant Thornton told the first meeting of creditors last Friday they had received formal claims totalling A$1.75 billion, including from its main shareholder Softbank, its financial backer Credit Suisse and other creditors including employees.

Grant Thornton said the administrators have also been put on notice of a potential future claim of A$3.1 billion from the Association of German Banks. The meeting also heard the local Greensill entity has filed a claim of about $1 billion against Greensill UK (which is also in administration).

The liquidation of Greensill could spell disaster for the group’s largest client, British steel tycoon Sanjeev Gupta and his GFG Alliance group which owns the Whyalla steel mills in South Australia.

Greensill, which specialises in supply chain financing, collapsed after its key backer Credit Suisse withdrew financial support which was prompted by Greensill’s Australian insurers refusing to renew insurance over $10 billion of trade credit.

Greensill’s fallout has also seen its German-registered Greensill Bank hit with criminal charges by Germany’s corporate regulator BaFin and revelations local councils around Germany were exposed to Greensill.

Saudi Aramco profit slumps

Oil giant Saudi Aramco reported a 44 percent slump in full-year 2020 results yesterday but maintained its US$75 billion dividend payout. The company described the past 12 months as one of the most “challenging years” in recent history.

Saudi Aramco, Saudi Arabia’s behemoth state oil firm, reported net income of $49 billion in 2020, down from $88.19 billion in 2019. The result was slightly below analysts’ expectations.

Shares in the top western oil and gas companies including Royal Dutch Shell and BP dropped to multi-year lows in 2020, as the coronavirus pandemic wreaked havoc across the global economy and sparked a historic collapse in the price of oil. Exxon Mobil, the largest US energy company, posted its first ever annual loss.

Turkey’s Central Bank Governor fired for raising interest rates

Turkey’s president has fired the country’s central bank governor, who, in his four months in office, had won the praise of investors for hiking interest rates and promising tighter monetary policies.

In a decree published at the weekend President Recep Tayyip Erdogan announced the departure of Naci Agbal, a former finance minister.

He will be replaced by a banking professor who has argued for lower interest rates.

Agbal was brought in to lead the central bank after the Turkish lira hit record lows and inflation soared. In his short time in office, Agbal had hiked the benchmark rate a total of 875 basis points, working to rebuild the credibility of the central bank after it was damaged by years of unorthodox policies.

Agbal’s most recent hike of 200 points last Thursday took Turkey’s benchmark interest rate to 19 percent, which was higher than analysts expected.

The bank said tight monetary policy would be maintained until inflation, which has hit more than 15 percent, was brought under control.

Past central bank managers before Agbal have burned through most of Turkey’s reserves trying to support the currency while rates remained well below that of inflation.

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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