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Monthly Economic Indicators

Executive Summary

  • Momentum in the economy was sustained in the December 2013 quarter, pointing to quarterly growth of around 1%.
  • Firms and consumers remain positive in their outlook in the new year, supporting growth in the March quarter.
  • Some of the international economic data were weaker as a result of temporary factors.

The underlying positive momentum in the New Zealand economy in the September quarter appears to have carried on into the December quarter, although the rebound in agricultural output from the drought will not be repeated.  The number of people employed increased 1.1% in the December quarter and unemployment fell from 6.2% to 6.0%.  Wage growth remained moderate and total labour incomes increased 5.2% from a year ago.

Other economic indicators also appear positive for GDP growth in the December quarter.  Exports grew by more than imports, which is positive for GDP, the balance of payments and the terms of trade, and points to increased income for the tradables sector.  Overseas visitor arrivals were steady and net external migration inflows picked up, boosting population growth and aggregate demand, particularly in Auckland and Christchurch.

Income growth from employment and exports supported retail sales in the December quarter, which is a positive indicator for private consumption growth.  Overall, we expect robust growth in GDP of around 1% in the December quarter.  The official figures will be released on 20 March. 

Early indications are also positive for the March quarter, with consumer confidence at a seven-year high and job ads increasing in January.  On a softer note, the housing market paused in January, but an acceleration in building consents in the December quarter points to further growth in residential investment in early 2014. 

Firms remain optimistic early in the new year, with new orders and activity indicators at high levels.  So far, the expansion has not brought higher cost-inflation, with labour, other inputs and capital goods prices all increasing only moderately in the past year, the only exception being construction costs.  However, the economy is expected to show higher inflation as spare capacity is absorbed, and the Reserve Bank is widely expected to increase the Official Cash Rate on 13 March.

The international economic outlook is generally positive, but there are some signs of weakness in the latest data.

The Special Topic this month looks at a framework for understanding internal and external imbalances in an open economy.  The framework is applied to the New Zealand economy in the light of recent developments and our forecasts.

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