Despite some better-than-expected economic data from around the world, financial markets remained jittery during the second quarter of 2010, with the spotlight firmly on events in Europe. The challenges facing Greece greatly affected general economic perceptions, with many investors fearing Greece’s woes could spread to other European economies and influence the global economic recovery.
As investors lost confidence in policy-makers’ ability to resolve the issues plaguing the European Union, global share markets lost ground sharply. Investors moved from shares and corporate bonds to ‘safer’ investments such as government bonds and cash.
While New Zealand markets have largely followed the global trend, economic news flow showed that the local economy is improving.
New Zealand summary
- Indicators point to continued recovery in the local economy with business confidence reaching a 10-year high. Consumer confidence also improved; unemployment fell sharply; and strong commodity prices helped the ongoing economic recovery.
- The New Zealand economy grew by 0.6% during the first quarter of 2010, with the manufacturing, wholesale and forestry sectors contributing the most.
- The Reserve Bank raised official interest rates by a quarter percent to 2.75% - the first increase since April 2009.
- As global share markets fell during May, the NZ dollar lost ground on the world’s foreign exchanges. It later rebounded as the RBNZ moved to raise domestic interest rates.
- Economic news from across Europe was surprisingly positive. The US economic recovery appeared to gather speed and the economy grew by 3.2% over the year to end March 2010.
- The Asian economies continued to fare well. Growth in China, India and Singapore remained rampant, and even Japan showed strong improvement with its GDP growing by 4.2%).
- Commodity markets were generally stronger. While the price of gold reached new record highs, crude oil prices fell from around US$85 to US$75 a barrel.
Source: AMP Financial Services