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Monthly Economic Indicators

Executive Summary

  • Overall, recent data and business surveys point to economic expansion persisting at a solid pace in the March and June quarters
  • Annual consumer price inflation picked up to 2.2%, as underlying price pressures continue to build
  • Geopolitical risk creates market volatility with elections in Europe

Economic indicators released in April suggest the economy expanded at a reasonable pace in the first quarter of 2017 and that underlying momentum will persist into the second quarter. However, mixed readings from some indicators mean uncertainty around the outlook has increased. On the one hand, surveyed business activity continues to suggest growth momentum will persist in the March and June quarters, and Electronic Cards Transactions over the three months to March point to solid quarterly growth in private consumption. On the other hand, housing indicators suggest residential investment could be a drag on growth in the near term, which, in combination with waning business and consumer confidence, suggests annual growth is unlikely to accelerate significantly over the first half of 2017 from its current rate of around 3%.

Nominal GDP is poised to grow strongly as prices pick up. Annual consumer price inflation rose to 2.2% in the March quarter, above expectations and the highest reading since 2011, which reflected the October 2010 increase in the goods and services tax. However, large contributions from some items, chiefly fuel and food prices, are expected to drop out of the annual calculation in 2018. Commodity export prices also lifted, particularly for dairy, firming up the likelihood for a farmgate milk price of $6.00/kg MS (or slightly above) in the current season. Over the eight months to February 2017, core Crown tax revenue was 1% above that forecast in the Half Year Economic and Fiscal Update 2016, consistent with stronger nominal GDP.

Early- to mid-April saw some volatility in financial markets, in particular markets adopted a ‘risk off’ stance. This was largely in response to growing geopolitical tension in Asia and parts of Europe and relatively weak economic data from the US including weak jobs growth for March. However, these market trends have largely reversed since the first round of the French election saw a market friendly result.

This month’s Special Topic, Illustrating Forecast Uncertainty, presents a set of fan charts that provide a quantitative visual assessment of uncertainty surrounding the Half Year Economic and Fiscal Update 2016 forecasts. Illustrating uncertainty around the outlook can help policy makers make more informed decisions by demonstrating that central forecasts are conditional on a set of key assumptions and judgements.

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