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Strong macro economic indicators and improving dairy prices are all pointing towards a positive growth story for the New Zealand economy, a top economist says.Speaking at a seminar at Karapiro, BNZ senior economist Doug Steel said New Zealand "stood out a long way" with a 3.6 per cent annual economic growth rate and was on top of the world in comparison to other countries.
These indicators including employment, migration, building consents and tourism were very strong, despite what had happened in the GlobalDairyTrade and dairy sector over the past two years.
Steel said the bank had lifted its milk price forecast to $6 per kilogram of milksolids for the current and next season following the recent GDT lift and the fall in milk production.
The New Zealand currency had hardly moved after the latest auction and Steel said this was because the market was more concerned with the upcoming US election.
He predicted a volatile time ahead for the US dollar regardless of who won and believed the New Zealand dollar would fall into the 60c range next year.
In overseas dairy markets, low grain prices would mean US dairy production would lift by 2-3 per cent in 2017.
In Europe, production had steadily declined since December last year and he expected this to continue. There was also over 400,000 tonnes of skim milk powder in storage in Europe and Steel believed those stockpiles had contributed to whole milk powder selling at $3300 a tonne and skim milk powder at $2300 a tonne at the latest GDT auction.
"You have massive stockpiles sitting there in Europe, you have got tightness of supply and falling milk production in New Zealand [which] seems to suggest you have higher WMP prices but the skim milk prices are still being weighed down by those high inventory levels."
He questioned when those stockpiles would be released back into the market.
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Fonterra chief financial officer Lukas Paravicini said he expected European milk producers to release the stockpile in a sensible manner and not to dump it on the market.
The lift in milk prices was a good, steady recovery, but he cautioned against calls to shift the milk price every time the GDT substantially lifted because of the complexities involved in setting the milk price.
"When you have to forecast the milk price in May for the full season, you have to forecast for 15 months. With the milk price, I have to consider the price I will sell to a customer in October next year."
Steel said other primary markets would be more varied.
Beef prices had eased off their highs due to more domestic supply coming on and prices would be lower this year a a result.
Lamb prices will remain subdued for the coming season. The biggest headwind for the lamb market was the collapse of the British pound following the Brexit vote, which had fallen 21 per cent against the Kiwi, he said.
"You are looking at something like 59 pence for the New Zealand dollar. That's very high."
That was a huge headwind for any sector exporting into the UK.
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