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Monthly Economic Indicators

Executive Summary

  • Retail sales fell in February and, despite an expected rise in March, will see consumer spending growth moderate in the March quarter
  • Business and consumer confidence post further gains, pointing to higher growth later in the year
  • Firmer world outlook supports commodity prices and exports

Price falls for food and consumer durables, as well as restraint by consumers, led to lower spending at retail outlets in February. Indicators of retail sales point to a rise in the March month and for the quarter as a whole. However, the pace of consumer spending in the March quarter is unlikely to match the 0.8% growth rate recorded in the December 2009 quarter.

Consumer confidence surveys point to accelerating growth over the year ahead, although with consumers remaining guarded in their current purchases, the pick up may be gradual. Business confidence readings also remain buoyant but there is scant evidence of that confidence flowing through into increased levels of employment and investment. We will get an update on the labour market in early May.

The recovery in the global economy has continued and the outlook has improved, although ructions in European sovereign credit markets highlight the fragile nature of the outlook. Nonetheless, New Zealand has continued to benefit from the recovery to date with world spot prices for our key commodities rising above the previous highs of mid-2008. The lift in commodity prices, if sustained, will boost New Zealand’s terms of trade significantly over the year ahead and flow through to higher income growth in the economy. For manufacturing exporters, a relatively strong Australian economy and lower cross-rate against the Australian dollar have been positive factors. The Special Topic this month provides an overview of recent international developments and how these are affecting the New Zealand economy.

The rise in commodity prices pushed the quarterly merchandise trade balance into surplus for the first time since 2001. Dairy exports rose 30% in the March quarter, while logs, meat and oil exports also rose strongly. On the imports side, plant and machinery imports posted their first rise in over a year, albeit a modest one.

The contrast between elevated levels of confidence and the caution that underlies consumer spending, coupled with subdued credit growth, suggests the process of debt consolidation is continuing. This is a process that we might see reflected in household savings in the period ahead. The outlook for exporters may also help drive investment spending, helping to promote a mix of growth that is oriented more toward investment than consumption.
This seems to be the case in the March quarter, with GDP growth shaping up to be around the same as the 0.8% growth rate in the December quarter, but with a shift in composition away from consumption and towards investment and export growth.

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