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Monthly Economic Indicators

Executive Summary

  • Indicators point to increasing New Zealand growth over 2012, although the pace will be only moderate
  • Inflation remains subdued, but expected to pick up somewhat from late 2012
  • Global growth forecasts have edged higher, although significant downside risks remain

April saw a slight improvement in local economic sentiment, while global sentiment softened towards the end of the month as data were generally weaker than anticipated. However, in line with risks easing since late 2011, forecasts for world and key trading partner growth edged higher. Nevertheless, risks remain elevated and skewed to the downside.

The Quarterly Survey of Business Opinion (QSBO) showed a general improvement in sentiment, in line with a moderate pickup in growth in 2012 for the New Zealand economy. Firms’ expectations for trading activity are at their highest level since 2003, although history teaches us to be careful interpreting this figure as subsequent experience has fallen short of expectations recently. Employment intentions have tracked broadly sideways, suggesting only a modest increase in employment in the March quarter (to be released 3 May). Canterbury is leading the way in several of the QSBO measures, likely in anticipation of the ramp up of the earthquake rebuild. However, there are some concerning signs, with increasing difficulty finding labour and higher pricing pressures in the region.

Overall inflationary pressures remain modest, with annual inflation falling to 1.6% in the March quarter from 1.8% in the December quarter. Most of the quarterly increase in prices was owing to an increase in tobacco duties, although there were some signs of the Canterbury earthquakes generating pricing pressures. Increased EQC levies and higher rents were two of the most obvious signs of this. The Treasury expects inflationary pressures to remain subdued for the first half of 2012, before edging into the top half of the Reserve Bank’s 1-3% target band as the economy and Canterbury rebuild pick up pace.

While international forecasts edged higher during April, international data appeared to lose some momentum towards the end of the month. For the US, China and Australia, data are still showing reasonable growth, whereas European data have continued to be weak. Risks have declined since the end of 2011, but remain elevated and skewed to the downside. This became increasingly apparent in April as market attention turned to Spain, driving its borrowing costs higher. Despite an easing of commodity prices, the NZD remained relatively high, providing an ongoing headwind to the tradable sector. This month’s Special Topic takes a closer look at New Zealand’s tradable sector, the difficulties in measuring it, and how it has performed in recent years.
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