The New Zealand economy continues to keep a tight grip on the country’s business, with this week’s expected rate cut by the country’s Reserve Bank now in the bag, unlike what happened here in Australia last week.
Not even the substantial rate cuts already delivered by the RBNZ , has been able to restart the NZ home building sector.
Figures out yesterday showed NZ home building fell 13% in the 4th quarter of last year, the biggest fall for 8 years.
Westpac economists said yesterday the official cash rate could hit a low of 2% in the current rate cutting cycle.
The cash rate is 3.5% and it’s expected to be cut by 0.50% after the RBNZ meeting and announcement on Thursday morning.
Westpac’s forecast for another 1.50% of rate cuts is a bit more than other forecasters.
Westpac’s NZ chief economist Brendan O’Donovan said the central bank had abandoned the former 3% floor for the official cash rate.
He said there’s now the potential for the Reserve Bank to cut another 150 basis points off the rate in the next few months.
Goldman Sachs JBWere said yesterday that they expected a cut this time of 0.50%
"We and the consensus expect a 50bp cut. The RBA’s recent decision to hold the cash rate steady has pared back previous consensus expectations of a 75-100bp cut.
"Despite the easing in interest rates so far we remain committed to a view that the economy remains in need of further and ongoing stimulation.
"To that extent we expect the RBNZ to cut the OCR further and maintain the OCR at a low level for a protracted period of time to promote economic stability."
Yesterday figures were released which confirmed the need for another cut.
NZ house prices are still falling and building approvals have dropped to a record low.
New Zealand house-building and renovation work also fell in the fourth quarter, the fifth straight quarterly fall.
The value of residential construction excluding inflation dropped 13%, seasonally adjusted, from the third quarter when it fell a revised 8.4%.
It was the biggest fall in 8 years for home building.
But non-residential construction rose 1.6% in the December quarter, after a 5.2% third quarter rise.
Overall, total building dropped 6.5% from the third quarter when it fell 2.6%.
House prices dropped 8.9% in February from the same month of 2008, according to figures from Quotable Value New Zealand, the NZ government valuation agency.
The agency said that house prices have been falling since July and the February decline was the biggest since the series began in 2005.
The NZ government publishes its fourth-quarter GDP figures on March 27.
And as if to emphasise the depths of the problems confronting NZ business, the company that operates New Zealand’ stock exchange, NZX Ltd., says it will start using bonus shares rather than cash to pay its dividends.
That way the company, which remains profitable, will be able to conserve cash: that’s if it can get shareholders to take a high proportion of the higher dividend in bonus shares, and not forced to buy them back for cash.
NZX will pay a dividend of 25 NZc a share on May 15, up from 21c a share in 2008.
Under the distribution plan, shareholders can request the company to buy back the bonus shares, with final details of the offer to be revealed on March 26.
It’s not the first time NZX has elected to offer bonus shares instead of pay cash dividends: it did so in 2007, but not in 2008..
Sharemarket operator NZX is to pay a fully imputed dividend of 25c a share for the year to the end of December 2008, up from 21c a share the previous year.
