Beware the Ides of March

For the world economy March was an eventful month on three counts:

1. the Japanese earthquake/tsunami/nuclear crisis and
2. the political turmoil in the Middle-East, this time centred on Libya.
3. the on-going concerns surrounding European debt issues with rating agencies downgrading Portugal, Ireland, Spain and Greece. Just today Portugal has requested financial help from the EU

For the NZ economy the 50 basis points cut in the OCR was predicted but the market expects the RBNZ to hike rates within in a year with inflation pressures mounting. According to the BNZ

As we move toward the end of the year, when we expect the RBNZ to raise rates to remove its “emergency” cut, and resume its policy normalisation process, the decline in the NZ/US interest rate differential is likely to be stemmed. In the near-term the NZD/USD remains vulnerable to any easing in global risk appetite or signs that global commodity prices may be losing steam.

Some key points for the NZ economy:
– It is likely to have contracted over March quarter – mainy due to Christchurch earthquake
– Treasury has downgraded 2011 GDP figures from 3.5% to 2%
– NZIER have been a lot more drastic in their assessment of GDP forecasting 0.3% for 2011
– Treasury has forecasted a current account surplus in the year ended March 2011 – first time since 1973 – as reinsurance inflows increase.
– Below is how the NZ$ faired with all these variables.

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