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Monthly Economic Indicators

Executive Summary

  • Business confidence rebounds and supports ongoing gradual recovery
  • Consumer inflation limited by weak trading activity
  • The global economy continues to grow strongly, but faces increased risks

Data released in April provided further insight into the effects on the New Zealand economy of the devastating February earthquake. Surveys of business confidence, released soon after the disaster, such as the Quarterly Survey of Business Opinion (QSBO), indicate that economic activity was significantly disrupted, but the disruption largely occurred in the Canterbury region.

More recent data show that the effects on business confidence have generally been temporary in nature. The National Bank Business Outlook Survey, for instance, found that headline confidence among businesses reversed half of the post-earthquake decline. The short-lived drop in confidence supports our view that the New Zealand economy continues to recover, albeit gradually. We expect that GDP will expand around 1% in the 2011 calendar year, before rebuilding work in Canterbury helps to push economic activity higher in 2012.

Meanwhile, an increasing number of businesses have noted rising cost pressures in recent months, but faced with a subdued trading environment many firms have been unwilling or unable to pass on increases to customers. Firms’ inability to pass through cost increases has limited increases in prices faced by households. The Consumers’ Price Index rose 0.8% in the March quarter largely the result of higher fuel and food prices in addition to increased tobacco excise rates. However, soft demand experienced by many retailers led to a greater-than-expected level of discounting across a variety of goods and services.

Activity in the housing market lifted strongly in March, largely as a result of increased sales in the Auckland region. Nevertheless, the housing market remains subdued with activity at near-record lows and house prices remaining largely unchanged in the month. Other indicators also suggest that the Auckland economy is outperforming those of other regions. However, divergence between regions is expected to be temporary as farmers start to spend recent increases in incomes and the Christchurch rebuild gets underway.

In contrast to businesses, sentiment among households remains subdued. While the earthquake clearly had an effect on consumer confidence, households were behaving cautiously prior to the disaster in part due to high levels of indebtedness. This month’s Special Topic examines the implications of household rebalancing on future spending behaviour.

Internationally, data released in April showed that the global economy continues to grow strongly, but is facing increased risks. Ongoing conflict in the Middle East and North Africa has kept oil prices elevated, and strong demand from emerging economies for commodities, while benefiting New Zealand, is stoking inflation pressures around the world. Inflation poses a risk to global growth as central banks around the world look to tighten policy in response. In addition, sovereign debt concerns in Europe were again prominent as Portugal officially requested a bailout.

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