Agri sector to lead economic recovery
OPINION: Over the past month, people up and down the country have been asking me what I think is in store for the Agri sector.
This is what Reserve Bank Governor, Graeme Wheeler, said today (May 11) when releasing the Bank's May Financial Stability Report.
"Although New Zealand's economic growth remains solid, the outlook for the global economy has deteriorated. Despite highly accommodative monetary policies and low oil prices, growth is slowing in a number of trading partner economies," he says.
"Dairy prices remain low with global dairy supply continuing to increase. Many farmers now face a third season of negative cash flow with heavy demand for working capital."
Deputy Governor, Grant Spencer, said: "In the banking system capital and liquidity buffers are strong and profitability is high.
"However, the system faces challenges. Internationally, credit spreads have widened, placing upward pressure on the cost of funds for New Zealand banks.
"The level of problem loans in the dairy sector is expected to increase significantly over the coming year, although we expect that dairy losses will be absorbed mainly through reduced earnings."
Wheelers also says imbalances in the housing market are increasing with house price inflation lifting again in Auckland, after cooling in late 2015 and early 2016 following new restrictions in investor loan-to-value ratios and government measures introduced in October.
The Bank remains concerned that a future sharp slowdown could challenge financial stability given the large exposure of the banking system to the Auckland housing market.
