The Treasury

Global Navigation

Personal tools

Treasury
Publication

Monthly Economic Indicators

Executive Summary

  • Retail sales volumes fell in June 2008 for the second consecutive quarter
  • The labour market is weakening and the unemployment rate rose to 3.9% in June 2008
  • We maintain our view that the economy contracted in the June quarter
  • At this stage we are not ruling out that a further small fall may occur in the September quarter before growth turns positive in the December quarter

High food and petrol prices and debt servicing costs have put pressure on household budgets and led to a reduction in consumer spending.  Retail sales volumes fell in June 2008 for the second consecutive quarter and we expect real private consumption to contract in the June quarter and remain weak in the September 2008 quarter. 

The housing market is weakening.  High mortgage rates and low net inflows of permanent and long-term migrants have led to the slowdown in the housing market.  Houses are taking longer to sell and house prices will likely fall further.  Given the fall in house sales, we expect residential investment to contract in the June and September 2008 quarters.

The labour market is softening.  The economy failed to add any jobs in the first two quarters of 2008 and the unemployment rate rose to 3.9% in June.  With firms facing high cost pressures from stronger wages and rising electricity prices, profit margins are being squeezed.  Although firms’ pricing intentions remain high, demand is weakening and this will limit the extent to which firms are successful in raising prices.  We expect some firms to reduce their current staffing levels in order to reduce costs and the unemployment rate to rise further.  However, in line with falling activity we expect inflation to ease in the medium term. 

We maintain our view that the economy contracted in the June quarter, as stated in the July 2008 Monthly Economic Indicators.  At this stage we are not ruling out the possibility of a further small fall in the September quarter with residential investment expected to post a significant contraction in the September quarter.  We continue to expect growth to turn positive in the December quarter owing to the combined effects of tax cuts, recovery from the drought and the weakening NZ dollar.  We also expect annual average growth in real GDP to be around ½% in the calendar 2008 year.

This month’s special topic reports on the business and tax talks undertaken by Treasury in preparation for the Pre-election Economic and Fiscal Update.
Page top