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Monthly Economic Indicators

Executive Summary

  • Economic conditions point to moderate growth in the June quarter...
  • ...but global risks remain.
  • Labour market data were soft, but starting to show some positive signs...
  • ...while retail sales rebounded in the June quarter.

The New Zealand economy appears to have grown at a moderate pace of around 0.6% in the June quarter of 2012, with robust growth in private consumption supported by higher labour incomes. A similar pace of growth is expected to continue in the second half of the year and annual growth may be slightly higher than our Budget forecast of 2.2%. However, risks remain to the outlook, particularly from Europe but also from China and the Asian region.

Labour market indicators were mixed in the June quarter, but overall remain soft. The unemployment rate rose to 6.8%, and has remained broadly steady since the Global Financial Crisis (GFC). However, there were some positive signs, with hours paid increasing significantly in the quarter. Wage growth is moderate despite the high unemployment rate, in part owing to increasing difficulty in finding skilled labour.

Retail sales, supported by higher incomes, rebounded from their post-Rugby World Cup dip in March. As a result, we have increased our consumption forecast for the June quarter from 0.5% to 1.0%. However, we expect consumption to return to a slightly below-trend rate of around 0.5% per quarter over the rest of 2012, consistent with below-average consumer confidence and ongoing household consolidation.

Global market sentiment improved during August, as the positive tone from ECB President Draghi's "blue print" for intervention at the start of the month permeated through thin trading volumes caused by the Olympics and northern hemisphere summer holidays. There are several key events in September, with the Troika returning to Greece, the German Constitutional Court ruling on the European Stability Mechanism (ESM) and fiscal compact, and a parliamentary election in the Netherlands. Market sentiment could change very quickly.

This month's special topic examines the outlook for commodity prices and trade. World commodity prices fell sharply over the June quarter but have risen strongly over the past few weeks, driven by a recovery in oil prices and a surge in grain prices to record levels. Beyond this year, the rise in grain prices may assist a recovery in New Zealand's terms of trade.

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