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					    Economy Watch
    26 February 2010

    Still Waiting for Proof of Strong Recovery
   January’s exports better than expected, but patchy                                                     Ann % change
                                                                                                            in 3mth totals
                                                                                                                                                                   Import Categories
   Imports as expected, with little sign of core rebound                                                    40
   Current account deficit heading below 2% of GDP                                                           30

   But building consents disappointing

   With residential stalling, non-res down with a thud                                                       15
   Further evidence of patchy recovery                                                                          5
    Business surveys signal a clear recovery is underway.                                                    -15                                                                                    capital goods (ex-transport)

    Yet there is little proof of it in the data to date.                                                     -20                                                                                    consumption goods
                                                                                                             -25                                                                                    industrial supplies (ex-oil)
    This morning’s batch was but the latest example.                                                         -30

    While merchandise exports proved better than expected                                                    -35
                                                                                                                      97        98        99        00        01        02         03     04       05       06       07       08   09     10
    for January, they were a very mixed bag by category.                                                   Source: Statistics NZ                                                    Monthly

    And building consents were just plain disappointing.
                                                                                                           As for merchandise imports, these were about as we
    Goods exports printed at $3.15b (-0.6% y/y), which was                                                 expected for January, at $2.88b, although a touch weaker
    nearly $200m more than the market, and we, anticipated.                                                than what the market was looking for.
    The dairy industry continued to be the driving force
    behind the nation’s improving export receipts. This is a                                               The annual fall, of about 12%, of course partly reflects
    combination of improved volumes and better prices.                                                     the approximate 20% increase in the trade-weighted
                                                                                                           exchange rate over the period. Still, the only obvious
    Oil exports (undoubtedly related to the new Maari field                                                indications of a turnaround in activity were coming from
    reaching full flow) and log shipments abroad were the                                                  the likes of oil and, to a lesser extent, vehicles.
    other clear standouts.
                                                                                                           The more fundamental import categories were not
    However, the rest of exports were mainly negatively                                                    rebounding with any vigour, as far as we could detect.
    inclined. As examples, in the three months to January                                                  The value of capital goods imports in the three months to
    the value of meat exports fell 15%, seafood retreated                                                  January was still down in the order of 27% on the same
    20%, iron and steel was down 22%, vegetable exports                                                    period a year prior. It was a similar case for industrial
    dropped 18%, and with many other food-type categories                                                  supplies (ex-oil).
    down in the range of 15 to 25%.
                                                                                                           Imports of consumer goods, meanwhile, were down
    Even the manufacturing export categories of mechanical                                                 11% – similar to the annual rate of retreat back in
    and electrical machinery – which one might have thought                                                September/October last year.
    were in a good slipstream in respect of exposure to
    Australia and the relatively soft NZD/AUD exchange rate                                                The undeniably good news in the latest trade figures
    – were 13% lower than a year ago, on a three-month to                                                  was that they implied further improvement in the current
    January basis.                                                                                         account. While the annual trade balance wasn’t quite in

    Annual % change                   Exports and Commodity Prices                                         NZ$b                                Annual Merchandise Trade Balance


       20                                                                                                   0

                                                                                                            -1                                                                                Excluding
                                                                                                                                                                                             lumpy items

                                                                                                            -3                                                                    Total

      -10                                                                                                   -5

                                      ANZ commodity                              Merchandise                -6
      -20                             price index (NZ$)                          export values

                                                                                                                 96        97        98        99        00        01        02      03       04     05      06      07      08    09     10
             97       98         99   00     01      02    03     04   05   06    07      08     09   10
    Source: ANZ, Statistics NZ, BNZ                       Monthly                                          Source: Statistics NZ, BNZ                                              Monthly                                                                                                                                                                                                              Page 1
Economy Watch                                                                                                                                                                                                    26 February 2010

  Number                                       Dwelling Consents                                                               Ann % change in
                                                                                                                                 3m values                           Residential Building Consents
  3000                                                                                                Seasonally                60
                                                                                                       Adjusted                 50
  2000                                                                                                                          10

  1500                                                             Trend                                                       -10
                                                                                                                                                                                       and additions
  1000                                                                                                                                                                                                                Dwellings
     500                                                                                                                       -60
            98        99           00    01        02        03    04        05        06        07       08       09    10       1996        1997 1998 1999 2000           2001 2002 2003       2004 2005 2006 2007         2008 2009 2010
Source: Statistics NZ, BNZ                                    Monthly                                                         Source: Statistics NZ                               Monthly

positive territory in January, it was when stripped of lumpy                                                                  In large measure, this signals more of pick-up in home
transport items. On the latter basis, a slight surplus has                                                                    construction than we’ve seen so far. However, we would
emerged, when it was only twelve months prior it was in                                                                       also make the technical point that it would not require
the red to the tune of $4.4b.                                                                                                 much in the way of month to month improvement in
                                                                                                                              residential building consents (s.a.) to boost the annual
This, in turn, feeds positively into the broader current                                                                      gains to something approaching that implied by the
account, which looks on course to slim its deficit down                                                                       boisterous looking NBNZ survey indicator. This, in many
to less than 2% of GDP in this year to March 2010 (a year                                                                     ways, is a reminder of the very low base we are coming
ago, the proportion was 8.7%). To be clear, we expect                                                                         off in respect of home construction.
New Zealand’s external deficit to expand anew over the
coming years. However, the starting point gives some                                                                          We should also point out that consents for residential
important breathing space, especially for those who were                                                                      alterations and additions were not even matching the
not so very long ago hyperventilating about New Zealand’s                                                                     annual gains in dwellings. Indeed, they were down 8%
external vulnerabilities. Iceland and Ireland we are not, and                                                                 y/y in January (albeit partly reflecting the fact they held
never were.                                                                                                                   up much better than new home building over 2008/09).

Getting back to the not so good news, however, January’s                                                                      As for non-residential consents, these were very weak in
building consents were disappointing. We had expected                                                                         January. It was a bit of a surprise. Yet it was also exactly
a clear bounce-back in residential consents, following                                                                        the sort of number we had feared, with consents having
a stalling of the strong-recovery theme that had been                                                                         held up almost too well into the end of the year, in relation
building since mid-2009. Instead, the numbers fell back                                                                       to the more generally poor indicators and anecdote from
a further 2.8%, seasonally adjusted (albeit steadier on                                                                       the sector.
an ex-apartment basis). The trend is still looks upward.
But the tail end of it is wavering, not wagging.                                                                              Specifically, the value of non-residential consents was
                                                                                                                              down 39% on January 2009. It was fundamentally a
At first face, this appears inconsistent with the recent                                                                      case of the private-sector type categories clearly going
ramp-up in residential construction expectations, as per                                                                      backwards, still, but with public sector and civic projects
the NBNZ business survey. Yes, this measure did come                                                                          now coming off their previous lumpy highs as well.
off a bit in yesterday’s survey. However, at +47 (from
+63) it was still exceptionally strong.                                                                             

 %                                            Residential Investment                                                           % change                       Non Residential Building Consents
 50                                                                       Building consents,                                      80
 40                                                                      3m/3m annual change
 20                                                                                                                               40
   0                                                                                                                              20

-30                                                                                                                              -20
                                                                     NBBO Residential Outlook,                                   -40                                                                             Annual average
-50                                                                       fwd 6 months
-60                                                                                                                              -60
       95        96      97        98   99    00        01    02    03       04   05        06    07      08   09       10          1997       1998        1999   2000   2001   2002   2003 2004       2005   2006   2007   2008   2009   2010
Source: Statistics NZ, NBNZ, BNZ                                   Monthly                                                    Source: BNZ, Statistics NZ                                 Monthly                                                                                                                                                                                                                Page 2
Economy Watch                                                                                                                                                                                  26 February 2010

Contact Details
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Stephen Toplis                                  Craig Ebert                                      Doug Steel                                      Danica Hampton                                  Mike Jones
Head of Research                                Senior Economist                                 Economist                                       Senior Strategist                               Strategist
+(64 4) 474 6905                                +(64 4) 474 6799                                 +(64 4) 474 6923                                +(64 4) 472 4767                                +(64 4) 472 4767

Main Offices
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Private Bag 39806                                       Private Bag 92208                                       PO Box 1461
Wellington Mail Centre                                  Auckland 1142                                           Christchurch 8140
Lower Hutt 5045                                         New Zealand                                             New Zealand
New Zealand                                             Phone: +(64 9) 976 5762                                 Phone: +(64 3) 353 2219
Phone: +(64 4) 474 6145                                 Toll Free: 0800 081 167                                 Toll Free: 0800 854 854
FI: 0800 283 269
Fax: +(64 4) 474 6266

National Australia Bank
Peter Jolly                                             Alan Oster                                               Rob Henderson                                           John Kyriakopoulos
Head of Research                                        Group Chief Economist                                    Chief Economist, Markets                                Currency Strategist
+(61 2) 9295 1199                                       +(61 3) 8634 2927                                        +(61 2) 9237 1836                                       +(61 2) 9237 1903

Wellington                                                                                                      New York
Foreign Exchange                                        +800 642 222                                            Foreign Exchange                                         +1 800 125 602
Fixed Income/Derivatives                                +800 283 269                                            Fixed Income/Derivatives                                 +1877 377 5480
Sydney                                                                                                          Hong Kong
Foreign Exchange                                        +800 9295 1100                                          Foreign Exchange                                         +(85 2) 2526 5891
Fixed Income/Derivatives                                +(61 2) 9295 1166                                       Fixed Income/Derivatives                                 +(85 2) 2526 5891
London                                                                                                            24 HOUR FOREIGN EXCHANGE SERVICE
Foreign Exchange                                        +800 333 00 333                                           Phone Toll Free 6am to 10pm NZT – Wellington Office
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