Overseas the only threat

By Joe Helm

Unexpected shocks from overseas are the only risk to continued economic growth for New Zealand, according to HSBC Markets.

In its June quarter Financial Markets Quarterly publication, HSBC predicts growth of about 0.6 per cent for the quarter after an anticipated 0.5 per cent rise in the first three months of the year.

HSBC, the new name for the Hongkong and Shanghai Banking Group, also predicts growth of 0.6 per cent in the September quarter and 0.9 per cent in December as positive trade effects and improved commodity prices flow through the economy.

"It will require a further, negative shock to the New Zealand economy, for example a US economy slowdown caused by a sudden extreme reversal on Wall St, to create a worsening rather than improving outlook for growth," the report says.

"An eye must also be kept on the Asian region for fear of a second negative shock."

HSBC says the economy is now entering a crucial period over the June and September quarters where the influence of lower interest rates should begin to make themselves apparent in improved growth.

In a bold prediction, HSBC says encouraging domestic news and a new-found stability in interest rates will boost the New Zealand dollar by almost three cents, or almost 5 per cent, to 57USc by June 30.

The commentary said: "HSBC believes that a lower than expected rate of GDP growth and a more than likely appreciation of the US dollar during the June quarter 1999 will mean that the New Zealand dollar will struggle to appreciate quickly. Our end June forecast is for a New Zealand dollar-US dollar rate of 57c."

HSBC's September quarter forecast for the kiwi is also 57USC. The New Zealand dollar closed yesterday at 54.6USc.

The commentary says the New Zealand dollar remains undervalued by around 11 per cent at this point of the economic cycle.

In addition the downward trend in the 200-day moving average has halted and remains steady, signalling that the downward momentum should be finished.

HSBC expects the short end of the yield curve to remain relatively stable and expects the March 2002 bond to trade in a range between 4.95 per cent and 5.25 per cent in the June quarter, compared with 4.99 per cent yesterday.

HSBC believes the July 2009 bond will trade between 5.5 and 6 per cent in the June quarter, compared with 5.75 per cent yesterday.