Episode Details

Kia ora,

Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

And today we lead with news of a major airplane crash in South Korea, probably due to a birdstrike.

In the global economy, the situation is dominated by market fears of what the incoming Trump Administration will do. Bond yields are pricing in that risk by raising them to near their highest since 2007. Equity markets are down, with the S&P500 down -2% since its peak close on December 6. The Nasdaq is down -2.2% since its peak on December 16.

Rising bond yields depress bond prices. And some finance professionals think the shift higher has only just begun and the risks will accelerate as the capricious Trump agenda takes shape. Bond investors are in for steep losses in 2025, they say.

The type of flipflops from Trump, like going from campaigning to ban Ticktock to now telling the Supreme Court to leave it alone, from campaigning to ban immigrant H-1B visas to now saying they are essential, mean markets don't trust his positions anymore. They are late to this realisation. And perhaps it mattered little when he was just a candidate, but now he will be in power again, they sense chaos.

We should also keep an eye on trade disputes between Canada and the US. A Trump penchant for tariffs on Canadian softwood exports to Canada could see a rise in competition in other markets for New Zealand logs and milled pine as a fallout.

Meanwhile, US inventories, both retail and wholesale were little-changed in November. But they are likely to rise from here as traders rush to beat the impending tariffs.

US exports rose +6.0% in November compared with the same month a year ago. But US imports are zooming higher on the expectation of those rising tariffs, up +7.3%. That caused a Trump-induced trade deficit of -US$99 bln in the month, up from -US$90 bln in the same month a year ago.

Across the Pacific, Japanese retail sales rose +2.8% in November from year-ago levels, up from a downwardly revised +1.3% rise in October, and easily beating market expectations of a +1.7% gain. This marked the 32nd straight month of expansion in retail sales there and the fastest growth since August, with rising wages continuing to support consumption.

However, Japanese industrial production fell by -2.3% in November from October, compared with market expectations of a -3.4% fall. The latest result followed a +2.8% growth in October and is the first contraction in industrial output since August. Year-on-year the November decline was -2.8%. A dip in machinery orders took the blame.

Taiwanese consumer sentiment dipped in December from November, but remains sharply higher than year-ago levels, and still in the high recovered range after the low point in late 2022. However, it isn't yet back to pre-pandemic levels.

In China, local observers now

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