By Rob Hosking
Friday 31st January 2003
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"Twelve months ago we were predicting a year of recovery, and in a sense it was globally, but it was a very mediocre recovery," Mr Caton told The National Business Review.
International uncertainty around the prospects of war in Iraq currently clouded the outlook, he said.
"But I can't think of a major conflict that hasn't been so well foreshadowed as this one people have had time to work out the implications and there is less of a shock value."
In the increasingly likely event of war, the price of oil would probably spike quickly and then go down below current levels, he said.
"That will fuel consumer confidence in the US. The government has already thrown a fair bit of fiscal stimulus at the US economy and the interest rates remain low.
"So in 12 months' time, I suspect the US and the other major economies will look significantly better than they do now."
In this part of the world, the Australian and New Zealand economies are coming off their gravity-defying high growth spurts.
"Australia and New Zealand been doing extraordinarily well, but that can't continue. The fact is that New Zealand can't grow at 4% year on year for very long. And in Australia the effect of the drought likely to sap growth even when the dry ends."
The Australians are also having to deal with the deflation of a housing bubble.
Both economies are having to cope with a rise in their respective currencies against the US dollar.
While some exporters are starting to squirm in New Zealand, Mr Caton endorsed the view of Reserve Bank governor Alan Bollard that the rise represented a return to roughly normal levels.
"In New Zealand it certainly hasn't risen above normal in fact, if you look at it historically the New Zealand dollar is still a little on the cheap side, relative to the US currency.
"If exporters are screaming then perhaps they should be in another line of business. Perhaps they've been spoiled by long run of a low exchange rate."
However, he was surprised by the number of New Zealanders he had spoken to who assumed the current level of the kiwi-US dollar cross-rate was a temporary aberration and that the New Zealand dollar would soon drop to the mid-to-high 40-49USc range again.
"I can't see that happening for some time."
In the Australian case, the currency has risen only because the US dollar has fallen, while the New Zealand dollar has "done that and a bit more. But what happens next depends on what the US dollar does, not what happens in Australia and New Zealand."
New Zealand investors with existing holdings offshore have been "hammered" by the rise against the US currency but anyone looking offshore now should be able to pick up some good deals, he said.
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