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Monthly Economic Indicators

Executive Summary

  • Business surveys point to robust economic growth continuing in the first half of this year
  • Capacity constraints are increasing, but inflation expectations remain low
  • Inflation outturns were weak, but in-line with forecasts
  • World growth has taken on a softer tone, but monetary policy remains supportive

Strong economic growth looks set to continue over the first half of 2015. Surveys showed that business confidence has moderated but remains at historically high levels. Hiring intentions remain strong, while profit expectations increased markedly, leading to large rises in investment intentions.

The robust economic activity has resulted in capacity constraints tightening further. However, surveys show pricing intentions and inflation expectations remain subdued, which was reflected in annual inflation declining from 0.8% in December to 0.1% in March. The key contributors to the lower outturn were petrol prices falling 11% in the quarter, as well as large falls in international airfares and package holiday prices.

Recent electronic card transactions and consumption goods import data point to consumer spending remaining strong in the March quarter. The pick-up in domestic demand was also evident in recent developments in housing activity. House sales in March increased further, while the number of building consents remains at a high level, implying robust residential investment in subsequent quarters. Low interest rates, rapid house price rises and modest price increases have resulted in consumers remaining upbeat and, as a result, we expect private consumption growth to remain robust.

Growth was subdued across many of the major trading partners. US GDP growth was low at 0.1% in the March quarter, reflecting the harsh winter and weak conditions in the energy sector. China’s growth from a year ago slowed to the government’s 2015 target of 7.0%, and weaker Chinese demand is expected to weigh on the Australian terms of trade and nominal GDP. Meanwhile, low global inflation provides room for continued monetary accommodation. Soft global data, stimulatory global monetary policy, and concerns around Greece led to an appreciation of the New Zealand dollar over April.

Treasury’s latest economic forecasts will be released as part of the Budget Update on 21 May.

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