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Monthly Economic Indicators

Executive Summary

  • Economic growth appears to have slowed in the March quarter
  • The outlook for domestic demand is for continuing weakness
  • Inflationary pressures remain firm and show few signs of easing
  • World developments still a concern for growth

Economic growth appears to have softened in the March 2008 quarter. Surveys showed that business conditions have deteriorated markedly since last year. Activity and business confidence indicators fell sharply across the majority of sectors and regions despite capacity utilisation reaching record high levels. Firms' outlook for activity and profits also fell, leading to large falls in investment intentions.

The slowdown in domestic demand was also evident in recent developments in the household sector. House sales in the March month fell further, while the number of building consents also declined, implying residential investment will soften in subsequent quarters. Retail sales eased in February and recent electronic card transactions suggest consumer spending will continue to moderate in March. High interest rates and rising costs have been weighing heavily on households and, as a result, we believe private consumption growth softened in the March quarter.

A decline in exports in March also pointed to weak growth in the quarter. Annual inflation lifted from 3.2% in December to 3.4% in March. Key contributors to the higher outturn were price increases for food, transport and housing. Dairy products and petrol prices rose more than 20% in the past year, reflecting rapidly rising commodity prices. The proportion of firms planning to increase prices in the next three months rose as they seek to pass higher costs on to consumers. Recent trends in both food and energy prices and their impacts on the New Zealand economy are the focus of this month’s Special Topic: The impact of food and energy prices on the New Zealand economy.

Some stability returned to international credit markets in April as participants felt that the worst might be over, but economic data generally showed weakness in the US economy and some weakness in Europe. However, inflation remained high in major economies, largely because of increases in food and energy prices. The European Central Bank held its policy rate constant in view of high inflation, but central banks in the UK and US cut their rates a quarter of a percentage point in response to weak demand. There was continuing volatility in equity and financial markets and the NZ dollar eased slightly towards the end of April.  

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