Rebound in export returns 'looks like 2008 story'

An export-led recovery on the back of a lower New Zealand dollar will be later and weaker than hoped for, ANZ economists say.

The anticipated rebound in export returns "looks like a 2008 story to us", they conclude in their latest market report.

In its June Monetary Policy Statement, the Reserve Bank forecast exports would grow by 5.8 per cent over 2007 and 2008 as the lower kiwi dollar made New Zealand more competitive on global markets and increased returns.

"While we agree with the thrust of the Reserve Bank's assessment, we suspect the timing is a year out and it will not be before 2008 that the export sector really fires up,"ANZ economist Cameron Bagrie said.

The bank's more pessimistic view was based on factors like weakening global demand, softening commodity prices, and a longer estimate of the time it will take for the lower exchange rate to stimulate export volumes.

ANZ said rising costs would likely eat up the gains from the the kiwi dollar's spectacular depreciation so far.

"Any substantial gains for exporters will only come from a second leg in the currency adjustment, and this is looking like a late 2006 story."

The bank suggested there was a lag of about 18 months between moves in the currency and changes in export volumes, which implied the wider economy would not receive a boost from the export sector until mid-2008.

Export NZ chief executive Bob Walters said the ANZ's analysis was a bit pessimistic but logical. "Unfortunately it makes sense."

Walters believed the timing of the export recovery would depend largely on when the Reserve Bank began cutting interest rates as well as the dollar.

At present, the market consensus is for the bank to begin easing in March.

"If you're going to get the economy starting earlier in 2007 ... we probably need the Reserve Bank to cut rates pretty early.

"If they wait until next year I think the consensus would be that 2008 is about as early as you can expect exports to pick up and even then it might pick up quite slowly."

Westpac economist Nick Tuffley believed 2007 would see at least the start of the export volume pick-up.

But he also agreed with the ANZ Bank that the Reserve Bank was forecasting too strong and fast an improvement.