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Monthly Economic Indicators

Executive Summary

  • Retail sales grow strongly in the June quarter...
  • ...supported by a strengthening labour market, stronger net migration, more tourists and increasing house prices...
  • ...which should result in moderate real GDP growth in the drought-affected June quarter
  • The economic recovery in the developed countries broadened in August...
  • ...but the outlook for emerging Asian economies weakened

The New Zealand economy continues to show resilience and so far has not been significantly affected by recent shocks in the form of further earthquakes and the whey protein concentrate issue. Households and businesses are becoming increasingly optimistic about the economic outlook, with consumers in particular beginning to spend more. Core retail sales volumes rose strongly in the June quarter, with the strength broad-based across retail industries. Core retail values growth was slightly softer, as price pressure continued to be subdued.

A number of factors contributed to the strong retail sales outcome. The labour market continued to strengthen gradually, with a 0.4% increase in employment in the June quarter. Nominal wage growth remains soft, but given low inflation, real wage growth is more reasonable, supporting consumer spending. Short-term visitor numbers have surged in recent months to be only around 5% below the peak seen during the Rugby World Cup (RWC), supporting retail sales, particularly in the food and beverage services industry.

Permanent and long-term (PLT) migration continued its strong turnaround in July, rising another 2,000, for 10,600 in the year. This is helping to fuel stronger domestic demand, with effects on the housing market. House price inflation remains strong, contributing to spending through wealth effects and on household amenities. The Reserve Bank of New Zealand (RBNZ) announced new loan-to-value lending restrictions on banks, which could have implications for the housing market and monetary policy, in addition to improving macroeconomic and financial stability.

Even allowing for a negative drought impact in the quarter, these factors point to a small upside risk to Treasury’s Budget Economic and Fiscal Update (BEFU) forecast for 0.2% quarterly real GDP growth in the June quarter. Growth in nominal GDP could be softer than for real GDP as pricing pressures were particularly weak during the June quarter. However, this is likely to be temporary given the fading influence of the elevated exchange rate, the absorption of spare capacity in the economy, and higher commodity prices. Further out, the outlook remains positive, with indicators including business and consumer confidence pointing to solid real GDP growth in the second half of 2013.

A further broadening of economic recovery in the developed world was evident in August, while China’s growth outlook stabilised, but the outlook for other Asian emerging economies weakened. This month’s special topic examines the weaker outlook for the Australian economy and its implications for New Zealand.

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