Archive | Economy

The Build Act is new US anti-China weapon

In the hubbub over the US-China trade war, one element of it skipped my notice: an act passed through both chambers of the US Congress which will heighten tension, reduce environmental safeguards & politicise aid.

The Build Act (full title, the Better Utilisation of Investments Leading to Development Act) is overtly political in its requirement for projects to serve a US foreign policy purpose.

This will be done through a new organisation, the International Development Finance Corp (IDFC), which will replace the Overseas Private Investment Corporation (OPIC), set up in 1969.

Sarah Brewin, an agriculture & investment advisor to the International Institute for Sustainable Development, wrote about the enactment of the policy change in an article for the Independent Media Institute, which appeared on EcoWatch last week.

Her key paragraph:

“The Build Act requires the IDFC to develop guidelines & criteria to ensure that each project it supports has ‘a clearly defined development & foreign policy purpose.’ The requirement that all projects serve a foreign policy purpose, combined with weakened environmental protections, could see the IDFC supporting environmentally damaging projects if they are seen to be in US foreign policy interests – for instance, if it was thought that if not financed by IDFC, the project would instead be financed by a ‘strategic competitor,’with debt, influence & diplomatic relations accruing to that competitor rather than the US.”

The Build Act advances President Donald Trump’s view that human activity is the cause of climate change, while also advancing his anti-China cause.

EcoWatch, 4 December 2018: A US-China investment war is quietly emerging, and the environment will be the ultimate casualty
Reuters article, 4 October 2018: Congress, eying China, votes to overhaul development finance
International Institute for Sustainable Development

Attribution: EcoWatch, Reuters.

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The debt clock pounds on, Trump & Xi use different decks of cards, Lagarde wants illusions to come true

I did a longer count on Sunday morning to see if my 36 seconds estimate of how long it takes the US Debt Clock to add $US1 million to the country’s national public debt was correct. From 8.55am, my estimate put the tick over to a total $US21.8 trillion at 9.14am. It was right on time.

While this is a game that can amuse a small mind, it’s also a deadly serious game.

The US Federal Reserve will feel obliged to lift its funds rate at least once in its next 3 scheduled meetings and has warned of a possible 3 raises in 2019, but…. And it’s a big but.

Inconvenient for Trump’s power game

President Donald Trump doesn’t want to add $US55 billion/year to the interest bill through one quarter-percent raise, let alone 2 or 3 of them. But his primary target at the moment is to get a trade deal with China, primarily requiring a step back from technology transfer which US officialdom has deemed illicit.

The answer to the question, which will be posed in Buenos Aires this afternoon NZ time as Mr Trump & China’s president-for-life, Xi Jinping, sit down to dinner, will require an answer from the Chinese leader: How long does he want to be president for life?

If his answer is (1), a short time, he can acquiesce to every Trump demand, or even just that main one.

If his answer is (2), a long time, he can tell Mr Trump there is no way he can acquiesce, because he would be out of office, and probably out of breath, around the time his plane lands in Beijing. For that answer he needs a backup plan that saves face, puts a convoluted timeframe in place for technology change, reduces some US tariffs and involves at least some US oversight of change plus agreement allowing a better deal for US exports to China.

Even if China isn’t breaking US & Word Trade Organisation trade agreements, Mr Xi is in no position to disagree. His country’s trade position is worsening, China is spending reserves propping up malfunctioning businesses, and he doesn’t have a tariff response to match Mr Trump’s.

One Xi option: distractions

Mr Xi can look to alternatives while simply smiling with his lips pursed, as he does in all his photos with Mr Trump. He can widen China’s South China Sea military presence by adding drills in the North Pacific Ocean, where the only notable dot of land between China & California is Hawaii, and increasing investment in the South Pacific, perhaps along with some military presence.

If he relaxes the debt arrangements for Belt & Road investment, China will be able to advance that programme more rapidly. African nations are an open target and less of a focus for the US.

There is thus scope for Mr Xi to ease tension and create distractions, probably in timeframes to suit himself so long as he indicates a confirm response on addressing technology transfer.

For Mr Trump, that leaves the question of the growing US debt, which he needs to address while avoiding tipping the stock markets into reversal. He can do that by agreeing a China trade deal that sees more industrial activity in the US, lifting trade & stock positions on the one hand while at least slowing the rise of national debt on the other.

As Trump talks proprietary, Lagarde talks propriety

International Monetary Fund manging director Christine Lagarde was plainly focused on these issues when she sent out a release this morning NZ time calling for “decisive & collaborative action” by Group of 20 leaders “as global growth moderates and risks increase”.

She didn’t name anybody, certainly didn’t propose any specific solutions, but did throw a couple of figures into the air to show effects if the trade war spreads.

She said the IMF estimated 0.75% of global gdp could be lost by 2020 (that’s a year away) “if recently raised & threatened tariffs were to remain in place and announced tariffs were implemented”.

On the other hand, she said, “If, instead, trade restrictions in services were reduced by 15%, global gdp could be higher by 0.5%. The choice is clear: there is an urgent need to de-escalate trade tensions, reverse recent tariff increases and modernise the rules-based multilateral trade system.”

For Mr Trump, Ms Lagarde’s recipe is easy: Mr Xi accedes to his primary demand, in some form, and US trade will be rising in crucial markets ahead of the 2020 presidential election.

For Mr Xi, it’s harder. He needs to turn China’s domestic markets around but also reduce depletion of reserves, and he can only do both of those by agreeing some sort of external change. The trick will be to turn the technology transfer dispute into a win, which he can do by negotiating terms that appear favourable.

He can put some pressure back on Mr Trump by delaying change, and thereby delaying the impetus of business growth back home, which Mr Trump will be focused on heading to November 2020.

Ms Lagarde also had her eye on an issue which the 2 trade giants have been setting aside, “the excessive level of global debt – about $US182 trillion by the IMF’s estimate”. That debt total is international, public & private, and disguised because much of it is in the form of derivatives. A small tumble could quickly escalate into a worldwide collapse.

Her solution is one the “highly indebted emerging-market & low-income countries” she spoke of on one side of the balance sheet are unable to dictate, and one derivative marketeers are unlikely to support wholeheartedly while they’re making mega-returns from scalping their clients.

She said: “It is important, particularly for highly indebted emerging-market & low-income countries, to rebuild buffers and reverse procyclical fiscal policies. Increasing debt transparency, such as on the volumes & terms of loans, by borrowers as well as lenders, is as important as supporting debt sustainability.”

Ms Lagarde recommended 5 policies to the G-20’s members:

  1. Fix trade – priority No 1 to boost growth & jobs
  2. Continue to normalise monetary policy in a well communicated, gradual, data-driven manner – and with due regard to potential spillover effects
  3. Address financial risks, using micro- & macro-prudential tools to tackle problems related to leveraged lending, deteriorating credit quality & high exposure to foreign currency or foreign-owned debt
  4. Use exchange rate flexibility to mitigate external pressures, avoiding tariffs & other policies that could weaken market confidence, and
  5. Eliminate legal obstacles to the participation of women in the economy. This is key to tackling high & persistent inequality, and would add to the growth potential of all G-20 countries.

Realistically, what chance?

The first of those policies is less about trade, more about a power struggle deep into the 21st century. The big players will treat innocent bystanders like roadkill.

“Normalising” monetary policy is about handing to future politicians the gloss the incumbents want for themselves. Few will heed Ms Lagarde’s call. The debt mountain will grow.

Bankers can adopt more conservative practices – but what happens when competitors don’t? Or if a bailout is a prospect?

A large financial player – say, one of the world’s big banks – can adjust a small country’s exchange rate at will. Ms Lagarde is talking about exchange rates floating on the tide, untainted by sharp practices. Wholesome, unmanipulated. In short, an illusion.

And last, Ms Lagarde is talking about unravelling the deeply embedded misogyny that ensures inequality is the norm in much of the world. Her recommendation is to be rational, but she’s talking about upending centuries of religious & cultural dogma that it’s been convenient for males to uphold.

As Mrs Brown of Irish TV programme fame would say: “That’s nice.”

US Debt Clock

Attribution: IMF release.

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US debt level pushing fast towards $US22 trillion, and a look into Fed deliberations

On my way through a selection of economic articles & announcements this week, I looked at the US Debt Clock website a couple of times, and pondered how long it would be until the US clocked up $US22 trillion of national debt.

In addition, the US Federal Reserve open market committee issued the minutes yesterday from its 8 November meeting, showing there was considerably more discussion about future interest rate strategy than blunt headlines of up versus hold indicated.

According to the St Louis Federal Reserve Bank in its latest quarterly calculations, also out yesterday, total US public debt at 30 June was $US21.195 trillion – a long way off $US22 trillion, but rising fast.

After a debt crisis in early 2013, the legislated debt ceiling was raised to $US16.699 trillion in May 2013. President Donald Trump again suspended the debt ceiling on February 9 this year, through to 1 March 2019.

The Committee for a Responsible Federal Budget estimated public debt would hit $US22 trillion in March 2019, but it could happen earlier.

Total public debt went through $US21 trillion on 15 March 2018 and was closing in on $US21.8 trillion this morning. It’s quite hard to run a stopwatch on it, but the debt rises by $US1 million about every 36 seconds. At that rate it should hit $US22 trillion in 84 days – 23 February 2019.

This is a debt picture which makes US President Donald Trump – and plenty of others – keen to hold interest rates down. The US Federal Reserve had begun to raise its federal cashrate, increasing the target range for the federal funds rate to 2-2.25% in September but holding it at that level on 8 November.

US national public debt:gdp.

The St Louis Fed showed federal debt (total public debt) as a percentage of gross domestic product, seasonally adjusted, was 103.84% at the end of the second quarter of 2018, down from 105.23% in the previous quarter and 105.26% in the fourth quarter of 2016.

Debt caution evaporates

Despite those high ratios, now that Barack Obama’s out of office the Republicans don’t seem to have the same caution about rising debt as they used to. They’ve been aided in this reinterpretation of sound policy by having a new president who’s built his business empire on debt, and is keen to lift spending in some sectors, particularly the military budget.

Among interpretations of the Fed open market committee’s November minutes, one view was that the US central bank would hold back from raising its funds rate, which gave the US sharemarkets a boost.

The minutes show the committee went well beyond a yes/no on specific rates, holding a debate on various aspects of policy, including the levels of reserves it would require in an environment where banks had built up reserves as a precaution, making money market rates less sensitive to small fluctuations in the demand for & supply of reserves.

Fed staff also briefed the committee on alternative policy rates. The minutes showed no decision following that discussion, except to continue the discussion on options for long-run implementation frameworks.

The overall federal debt level, and the absence or re-imposing of a debt ceiling, weren’t factors leading the discussion.

Fed surveys strategy options

An examination of market behaviour & market movers’ expectations didn’t disclose any favouring of one policy likelihood over another: “On balance, the turbulence in equity markets did not leave much imprint on near-term US monetary policy expectations. Respondents to the open market desk’s recent survey of primary dealers and survey of market participants indicated that respondents placed high odds on a further quarter-point increase in the target range for the federal funds rate at the December open market committee meeting.

“That expectation also seemed to be embedded in federal funds futures quotes. Further out, the median of survey respondents’ modal expectations for the path of the federal funds rate pointed to about 3 additional policy firmings next year, while futures quotes appeared to be pricing in a somewhat flatter trajectory.”

Later in the minutes, the committee noted: “Almost all participants [staff, advisors & committee members] reaffirmed the view that further gradual increases in the target range for the federal funds rate would likely be consistent with sustaining the committee’s objectives of maximum employment & price stability.”

That read like a ‘We can keep raising the rate and blame somebody else, or blame everybody’ response – perhaps handy, knowing that President Trump wants no rate rise.

The discussion points that followed represented up, down & no change, giving Fed chair Jerome Powell the ability to acquiesce with the president’s preference, or push ahead with lifting the funds rate to a level where it’s closer to the long-term average and allows for easing if conditions worsen: “Consistent with their judgment that a gradual approach to policy normalisation remained appropriate, almost all participants expressed the view that another increase in the target range for the federal funds rate was likely to be warranted fairly soon if incoming information on the labour market & inflation was in line with or stronger than their current expectations.

“However, a few participants, while viewing further gradual increases in the target range of the federal funds rate as likely to be appropriate, expressed uncertainty about the timing of such increases. A couple of participants noted that the federal funds rate might currently be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity and put downward pressure on inflation & inflation expectations.”

There was also concern that the committee was signalling intentions – that it would raise rates at stipulated intervals or frequency – and that it would be better to be vague, basing rate changes on new data rather than a programme seen as being set in place.

Quantitative tightening

One aspect of the Fed deliberations that’s been emphasised less is the now-continual withdrawal of maturing Treasury securities from the market at the rate of $US30 billion/month, and agency debt & mortgage-backed securities at $US20 billion/month (assuming that much in each category matures in a month).

Fed view on China

Among global considerations, the US Fed committee’s markets had this to say on China: “In China, investors were concerned about the apparent slowing of economic expansion and the implications of continued trade tensions with the US.

“Chinese stock price indexes declined further over the inter-meeting period and were off nearly 20% on the year to date. The renminbi continued to depreciate, moving closer to 7.0 renminbi/$US – a level that some market participants viewed as a possible trigger for intensifying depreciation pressures. Anecdotal reports suggested that Chinese authorities had intervened to support the renminbi.”

Half-pie view on affordability

The committee minutes surprised me on one issue which is international – the relationship between house prices & interest rates: “Real residential investment declined further in the third quarter, likely reflecting a range of factors including the continued effects of rising mortgage interest rates on the affordability of housing.

“Starts of both new single-family homes & multifamily units decreased last quarter, but building permit issuance for new single-family homes – which tends to be a good indicator of the underlying trend in construction of such homes – was little changed on net. Sales of both new & existing homes declined again in the third quarter, while pending home sales edged up in September.”

The first surprise was the lack of comment on mortgage rates rising despite minimal movement in the base federal funds rate. The second surprise was that the Fed should see higher borrowing costs as affecting “affordability” – presumably the affordability of paying for what’s already bought – without comment on whether this would also bring pressure on house prices, which is a second segment of the affordability question.

Comments on volume alone, without factoring in price movements, leave the question open on whether supply will slump, thus maintaining price levels, or suppliers will agree to lower returns.

This issue is playing out in Australia at the moment, particularly in Sydney, where oversupply based on investor (and especially foreign investor) ambitions & high immigration is being followed by a sharp decline in values.

Different price/mortgage issues will arise in Auckland as immigration declines further, barring of foreign investors takes effect and supply of townhouses & standalone homes rises.

US Debt Clock
Federal Reserve open market committee minutes 8 November 2018
St Louis Federal Reserve Bank, total US public debt
St Louis Federal Reserve Bank, federal debt as percentage of gdp
The Balance, 1 August 2018: US debt ceiling & its current status

Attribution: Federal Reserve, St Louis Federal Reserve Bank, US Debt Clock, The Balance.

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Reserve Bank sets date to ease LVR restrictions

Reserve Bank governor Adrian Orr said today the bank would ease its loan:value ratio (LVR) restrictions on banks’ new mortgage loans from 1 January.

Reserve Bank loan:value ratio (LVR) restrictions on new mortgage loans from 1 January 2019:

  • Up to 20% (increased from 15%) of new mortgage loans to owner-occupiers can have deposits of less than 20%
  • Up to 5% of new mortgage loans to property investors can have deposits of less than 30% (lowered from 35%).

Mr Orr made the announcement when he released the bank’s November Financial Stability Report. He also put dates on 3 other reviews:

  • A final consultation paper on bank capital requirements in December
  • Jointly, with the Financial Markets Authority, reviewing banks’ responses to that review in March, and following up as required, and
  • An ongoing review of conduct & culture in the insurance sector, also with the Financial Markets Authority, to be released in January.

Mr Orr said in today’s report:

“Risks to New Zealand’s financial system have eased over the past 6 months, but vulnerabilities persist. In particular, households remain exposed to financial shocks due to their large mortgage debt burden.

“However, both mortgage credit growth & house price inflation have eased to more sustainable rates, reducing the riskiness of banks’ new housing lending. In response, we are easing our loan:value ratio (LVR) restrictions on banks’ new mortgage loans. If banks’ lending standards are maintained, we expect to further ease LVR restrictions over the next few years.

“Debt levels also remain high in the agriculture sector, particularly for dairy farms, implying ongoing financial vulnerability. Balance sheets need to be further strengthened. In the medium term, an industry response to a variety of climate change-related challenges appears likely, requiring investment.

“While domestic risks have eased, global financial vulnerability has risen. Significant build-ups in debt & asset prices, and ongoing geopolitical tensions, overhang financial markets.

“This vulnerability is highlighted by the current elevated price volatility in equity & debt markets. New Zealand’s exposure to these global risks has reduced somewhat, as New Zealand banks have become less reliant on short-term, and foreign, funding.

“The domestic banking system remains sound at present. We are using this period of relative calm to reassess whether the banking system has sufficient capital to weather future extreme shocks. Our preliminary view is that higher capital requirements are necessary, so that the banking system can be sufficiently resilient whilst remaining efficient. We will release a final consultation paper on bank capital requirements in December.

“The banking system remains profitable, reflecting banks’ low operating costs & strong asset performance. While positive overall, banks’ low costs have been partly achieved through underinvestment in core IT infrastructure & risk management systems in New Zealand. This was highlighted in our review of bank’s conduct & culture with the Financial Markets Authority. We will be jointly reviewing banks’ responses to our review in March, and following up as required. 

“CBL Insurance Ltd was placed into full liquidation by the High Court on 12 November. Aside from CBL, the insurance sector as a whole is meeting its minimum capital requirements.

“However, capital strength has declined and a number of insurers are operating with small buffers. The insurance industry must ensure it has sufficient capital to maintain solvency in all business conditions. Our ongoing review of conduct & culture in the insurance sector with the Financial Markets Authority will illuminate the industry’s risk management capability. The review will be released in January.”

Financial Stability Report

Attribution: Bank release.

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Migrant inflow continues to slide

New Zealand’s net migrant inflow continued to slide in October, by nearly 1000 for the month compared to the previous October, and by 10,651 over 12 months compared to the peak of 72,402 reached in the year to July 2017.

The annual net inflow was 61,751, which is around the level in 2015, the second year of a very large 5-year ramping up of immigration.

Over those 5 years, the net inflow of migrants fell just short of 313,000. Over the previous 6 years, which included 2 years of net outflows, the net population gain from immigration was just over 50,000.

Migrant arrivals into Auckland fell in October to 4815 (5250 a year ago), and are down by 3250 on a rolling 12-month basis at 56,451 (59,700).

The net inflow over the 12 months to October rose from 33,230 in 2016 to 36,357 last year, but fell to 30,973. That drop of almost 5400 is equivalent to about 1900 fewer houses needed/year.

The bald statistics, this October & October year compared last:

Net migrant inflow October: 6668 (7650)
Net migrant inflow October year: 61,751 (70,694); the peak was 72,402 in the 12 months to July 2017)
Migrants into Auckland in October: 4815 (5250)
Migrants into Auckland in October year: 56,451 (59,700)
Net Auckland inflow in October: 3265 (3709)
Net Auckland inflow in October year: 30,973 (36,357)
Net trans-Tasman flows in October: net outflow of 48 (inflow of 256); NZ citizens 452 (226) net outflow, non-citizens 404 (482) net inflow
Net trans-Tasman flows in October year: net outflow 1879 (22 outflow); NZ citizens  net outflow 6612 (5187), non-citizens net inflow 4733 (5165)
Overall net flows in October: NZ citizens net inflow 255 (632), non-citizens net inflow 6413 (7018)
Overall net flows in October year: NZ citizens net outflow 3144 (1417), non-citizens net inflow 64,895 (72,111)
Total arrivals, month & year: 10,881 (11,740); 128,123 (131,644)
Total departures, month & year: 4213 (4090); 66,372 (60,950).

Schedules change for different way of counting

Statistics NZ announced 2 new information release schedules today as a result of the ending of departure cards from 5 November.

It will publish statistics on short-term movements (including the current international visitor arrivals report) in a new international travel release, and long-term movements in a new international migration release.

Both releases will be published on the same day, up to 30 working days after the reference month. November data, previously published just before Christmas, will now be published in January, and December data in February.

The new release schedule largely reflects the need to use the integrated date infrastructure to provide place-of-residence in New Zealand for migrants & short-term resident travellers, which replaces information from the departure card. The timing is also affected by the new method to produce ‘provisional’ migration estimates.

Statistics NZ said the release in January would fully adopt the outcomes-based measure of migration, first released in May 2017. This measure looks at the travel history of a passenger over a 16-month follow-up period, and classifies a border-crossing according to how long they spent in New Zealand rather than relying on the stated intention on the passenger cards.

‘Final’ migration estimates, based on the ‘12/16-month rule’ and released today on Infoshare, are now updated to June 2017.

Explanation of new approach: Outcomes versus intentions: Measuring migration based on travel histories

Attribution: Statistics NZ release & tables.

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Fed holds rate

The US Federal Reserve kept the target range for the federal funds rate at 2-2.25% today, and gave no indication when it might next change the rate.

Fed chair Jerome Powell said in his summary of the state of the market:

“Information received since the Federal open market committee met in September indicates that the labour market has continued to strengthen and that economic activity has been rising at a strong rate.

“Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation & inflation for items other than food & energy remain near 2%. Indicators of longer-term inflation expectations are little changed, on balance.

“Consistent with its statutory mandate, the committee seeks to foster maximum employment & price stability. The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labour market conditions and inflation near the committee’s symmetric 2% objective over the medium term. Risks to the economic outlook appear roughly balanced.

“In view of realised & expected labour market conditions & inflation, the committee decided to maintain the target range for the federal funds rate at 2-2.25%.

“In determining the timing & size of future adjustments to the target range for the federal funds rate, the committee will assess realised & expected economic conditions relative to its maximum employment objective & its symmetric 2% inflation objective. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures & inflation expectations, and readings on financial & international developments.”

Attribution: Bank release.

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Reserve Bank expects to hold cashrate long-term, though numerous factors could change that

The Reserve Bank kept the official cashrate at 1.75% yesterday, and governor Adrian Orr said: “We expect to keep the rate at this level through 2019 & into 2020.”

This is his summary:

“There are both upside & downside risks to our growth & inflation projections. As always, the timing & direction of any future official cashrate move remains data dependent.

“The pick-up in gdp growth in the June quarter was partly due to temporary factors, and business surveys continue to suggest growth will be soft in the near term. Employment is around its maximum sustainable level. However, core consumer price inflation remains below our 2% target midpoint, necessitating continued supportive monetary policy.

“GDP growth is expected to pick up over 2019. Monetary stimulus & population growth underpin household spending & business investment. Government spending on infrastructure & housing also supports domestic demand. The level of the $NZ exchange rate will support export earnings.

“As capacity pressures build, core consumer price inflation is expected to rise to around the midpoint of our target range at 2%.

“Downside risks to the growth outlook remain. Weak business sentiment could weigh on growth for longer. Trade tensions remain in some major economies, raising the risk that trade barriers increase and undermine global growth.

“Upside risks to the inflation outlook also exist. Higher fuel prices are boosting near-term headline inflation. We will look through this volatility as appropriate. Our projection assumes firms have limited pass-through of higher costs into generalised consumer prices, and that longer-term inflation expectations remain anchored at our target.

“We will keep the official cashrate at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low & stable inflation.”

Monetary policy statement
Press conference live-stream

Attribution: Bank release.

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Migrant inflow slide continues

New Zealand’s net migrant inflow continued to slide in September as more non-citizens left the country.

The net outcome for September compared to September last year was a decline of 555 – 11, 015 arrivals (11,121 last year), 4752 exits (4303), a net inflow of 6263 (6818).

For the September year compared to the previous 12 months, the inflow was 128,982 (131,598), exits 66,249 (60,612), net inflow 62,733 (70,986). The peak inflow was 72,402 in the 12 months to July last year.

The trans-Tasman tide, positive last year has turned outward: for the month, a net 204 exits (155 arrivals); for the year, a net 1575 exits (66 the previous year, a net inflow of 1965 2 years ago).

For the fourth year, there was still a net inflow of NZ citizens returning in September – 2542 in, 2528 out, a net gain of 14 (351 in September last year), but over 12 months the flow remains outward, though still low compared to an exit rate of nearly 40,000 6 years ago. For the last 12 months, 31714 NZ citizens returned, 34,481 left for a net loss of 2767.

The inflow of non-citizens remains close to 100,000/year – up 20,000 on arrivals 4 years ago, but the exits have risen by 10,000 over those 4 years. For the last 12 months, arrivals were 97,268 (99,579 the previous 12 months), exits 31,768 (26,956), net inflow 65,500 (72,623).

The shifting flows make a big difference to Auckland. Looking at the last 3 years, arrivals in September have fallen from 5365 to 5283 to 4840, while exits have risen from 1424 to 1734 to 1969. For the year, arrivals have risen from 53,844 to 59,618 then declined to 56,886, while exits rose from 32,768 to 36,404 then declined to 31,417.

The net outcome for Auckland for the month has been a decline from 3941 to 3549 to 2871, and for the year a rise from 32,768 to 36,404, followed this year by a decline to 31,417.

End of exit cards

From next month, passengers leaving New Zealand will no longer have to complete a departure card. Statistics NZ said yesterday it was developing provisional estimates to maintain timely statistics.

Attribution: Statistics NZ.

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Reserve Bank holds rate at 1.75%

The Reserve Bank held its official cashrate at 1.75% today – as forecast by governor Adrian Orr – and he reiterated his view that the rate would stay at that level through 2019 & into 2020.

Mr Orr said: “Employment is around its sustainable level and consumer price inflation remains below the 2% midpoint of our target, necessitating continued supportive monetary policy. Our outlook for the official cashrate assumes the pace of growth will pick up over the coming year, assisting inflation to return to the target midpoint.

“Our projection for the New Zealand economy, as detailed in the August monetary policy statement, is little changed. While GDP growth in the June quarter was stronger than we had anticipated, downside risks to the growth outlook remain.

“Robust global economic growth & a lower $NZ exchange rate is expected to support demand for our exports. Global inflationary pressure is expected to rise, but remain modest. Trade tensions remain in some major economies, increasing the risk that ongoing increases in trade barriers could undermine global growth. Domestically, ongoing spending & investment, by both households & government, is expected to support growth.

“There are welcome early signs of core inflation rising towards the midpoint of the target. Higher fuel prices are likely to boost inflation in the near term, but we will look through this volatility as appropriate. Consumer price inflation is expected to gradually rise to our 2% annual target as capacity pressures bite.

“We will keep the official cashrate at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low & stable inflation.”

Attribution: Bank release.

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Fed raises rate again as storm clouds gather

As further storm clouds gathered over international trade yesterday, the US Federal Reserve concentrated its vision on home affairs and raised the target range for the federal funds rate another quarter percent overnight.

The Fed raised its rate in March & June, each time by 25 basis points. The latest raise takes the rate to a range of 2-2.25%.

The US central bank said in its explanation: “Information received since the Federal open market committee met in August indicates that the labour market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending & business fixed investment have grown strongly. On a 12-month basis, both overall inflation & inflation for items other than food & energy remain near 2%. Indicators of longer-term inflation expectations are little changed, on balance.”

The committee said further gradual increases in the target range would be “consistent with sustained expansion of economic activity, strong labour market conditions and inflation near the committee’s symmetric 2% objective over the medium term”.

It said risks to the economic outlook “appear roughly balanced”.

However, external risks increased.

At the United Nations, President Donald Trump stamped his new order in place, saying: “America is governed by Americans. We reject the ideology of globalism and accept the ideology of patriotism.”

President Trump also increased US trade tariffs to cover a further $US200 billion of goods imported from China.

His trade policy is one of bullying, and the answer to it may turn others to similar behaviour. That would ensure his “ideology of patriotism” takes hold, moving the world away from the era of largely free trade.

His political policy is also one of bullying – versus China, versus Iran, versus Venezuela.

Much of the world has been watching rather than reacting, but much of the new US economic & political stance is aimed at preventing China from rising to a level with the US – or higher – in the global power stakes.

The Trump style would force less powerful nations to take sides. In the interim, China will pursue its Belt & Road, South China Sea, African & South American support and South Pacific expansion goals.

While the US actions will raise costs for Chinese exporters by reducing their earnings from US trade, the US has been wilfully raising its own costs exponentially by no longer holding to any ceiling in national debt.

We can expect further disruption internationally as the US acts to change its debt payment requirements, China focuses on lifting trade elsewhere, and other nations seek alternatives.

Attribution: Fed release.

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