The Dominion Post has two articles (no electronic versions yet) looking at the impact the drought will have on the eoconomy. One suggests that $500 million could be knocked off the Fonterra payout. The other quotes an ANZ forecast that areas without irrigation could lose 10-20% of production. In the same article James Weir goes on to say that "while farmers suffer lack of water torture, the rest of the economy is as tough as Sevens rugby star Victor Vito." His conclusion is that with tax cuts due Bollard will have to keep his foot on the brake.
We think that things are more complex, and not as positive as James is suggesting. There has been a big shift in sentiment in recent weeks and business confidence is well down. Retail isn't looking that great, and around the country (perhaps not Wellington) property development has slowed, and house prices and sales seem headed downwards. Should the US head into recession and our trade start to suffer, we would not be at all surprised to see serious thought being given to a rate cut this year.
