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Tony Alexander BNZ Economist ‘Weekly Overview’ 12 February 2016

By Julie Halligan

BNZ Weekly Overview from the desk of Tony Alexander Economist

“So Many Problems Overseas

Since the start of this year share prices around the world have fallen sharply, oil prices have tumbled
taking prices for other commodities with them, the Bank of Japan has introduced a negative interest rate,
the European Central Bank is expected to ease again soon, and expectations of four rate rises this year
from the US Federal Reserve have evaporated. Why the turnaround in sentiment?

There is no single factor accounting for the deepening heebie geebies but a gathering of many geographically dispersed things. An early trigger for the rout was the tightening of US monetary last year and uncertainty about what it would do and the risk that the Fed. might blindly continue to tighten regardless of current economic conditions. An underlying source of concern getting worse by the week now is weakness in China’s economy, evidence of massive excess housing and factory capacity, worries about debt levels, and a weakening yuan pushed downward by massive capital outflows which are steadily depleting China’s huge foreign currency reserves. Plus the lower the Yuan goes the cheaper Chinese products in foreign markets and the higher the risk of deflation in economies like Japan and the EU. Japan’s economy spluttered last year almost back into recession and faith in the efficacy of Prime Minister Abe’s Three Arrows policy (easy fiscal and monetary policies plus deregulation) has evaporated. The Bank of Japan is engaging in unlimited money printing, businesses and aging households don’t won’t to borrow more money, government debt grows still, and the BoJ is now charging banks 0.1% to deposit money overnight. …..follow the link for the full Weekly Overview ; BNZ Weekly Overview with Tony Alexander Economist

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