Jan 23, 2008

Weldon Sees Recession Posssible in 2009

Writing before the Fed's largest rate cut in 23 years NZX boss Mark Weldon wrote this for the NZ Herald:

Moreover, if the US Federal Reserve cuts interest rates by up to 100 basis points over the next 12 months, as expected, the differential between us and the US will be more than 100 bps higher than today's 400 bps gap.
If this occurs, money will flood into New Zealand seeking yield, pushing our dollar higher.
Interest rates will be too high to borrow so businesses won't invest, stalling (already low) productivity growth.
Exchange rates of yet higher levels will finally rip the guts out of our export and manufacturing sectors - the growth engines of our economy.
This has the classic makings of a tipping point. It's a scenario call: if the RBNZ raises rates this year it will, in my view, be the catalyst to push us into recession in 2009. If it doesn't cut rates, the same may very well occur.

We have 0.25 to go....