NZ economy to keep slowing: Caton

BT Funds Management chief economist Chris Caton predicts a slowing local market offset by expansion in global equities for the year ahead.

Thursday, February 2nd 2006, 6:32AM

by Rob Hosking

Caton is bearish about New Zealand overall, and cautious about the sharemarket.

“The New Zealand economy has slowed, and will slow further,” he told financial advisers in Wellington yesterday.

Caton points to the forecasts for a selection of other economies New Zealand likes to compare itself with. The monthly forecasts go back to July last year. Each revision has been upwards, or similar, except that for New Zealand, where the revisions have all been downward.

“What’s important is not just the GDP figure but the trend and New Zealand does seem to be struggling to some extent.”

Both the New Zealand and Australian sharemarkets will find this year tougher than 2005.

Australia will continue a strong trend, but Caton points out that in any strong year there tend to be “pullback” periods where the market is becalmed or drops, “and that is of course when you get the buying opportunities.

“Overall this year won’t be as strong and it will be harder to pick the pullbacks.”

He expects the New Zealand dollar to fall to around US60cents by the end of the year.

The New Zealand/US dollar cross rate has tended to shadow the US trade weighted index, but became decoupled from that in 2003.

The gap, says Caton, is almost entirely driven by higher interest rates in New Zealand.

“New Zealand is the one developed country where people can get 7.25%, and that is what’s causing the gap.

Internationally, Caton says 6-10% gains in international shares will be the norm, with plenty of room for improvement.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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