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Monthly Economic Indicators

Executive Summary

  • Economy continued to recover gradually in September 2009 quarter from a long and deep recession, broadly in line with the Half Year Update
  • The impact of the recession can still be seen in lower inflation and a narrowing of the current account deficit, but imbalances remain
  • Economic growth expected to strengthen further in the year ahead, as reflected in higher confidence among businesses and consumers

Data released over December and January showed the New Zealand economy is continuing to recover from a long and deep recession.  This recovery has been subdued so far, with growth in real GDP of 0.2% in both the June and September quarters of 2009 still lower than population growth.  The recovery has also been concentrated in just a few industries.  A large rise in output in the primary sector during the September 2009 quarter, particularly mining, made up for falls in the key industries of manufacturing, construction and retail trade.

The lingering impact of the recession can be seen in lower inflation and a large narrowing in the current account deficit.  Non-tradables inflation and core measures of inflation were subdued in the December 2009 quarter, while a large fall in imports and a smaller outflow of investment income narrowed the current account deficit to 3.1% of GDP in the year to September 2009 from 8.4% a year earlier.  However, this fall is expected to be temporary and continued large net external liabilities make New Zealand vulnerable to any future financial crisis.

The outlook is for economic growth to gradually strengthen over the course of 2010.  Business confidence has risen to its highest level in over a decade and indicators of employment and investment have become less negative or entered positive territory for the first time since the recession began.  These indicators suggest the unemployment rate will rise further but will likely peak in early 2010.  With the economy recovering and the labour market beginning to stabilise, consumer confidence has also lifted strongly.

The merchandise terms of trade (ratio of goods export prices to goods import prices) fell sharply over the year to September 2009 due to previous falls in commodity prices associated with the global downturn.  With the ANZ Commodity Price Index showing world prices for New Zealand’s key commodities rising by 42% since their recent low point in February 2009, the terms of trade is expected to follow this upward trend from the December 2009 quarter.

Risks to this outlook are fairly evenly balanced.  A more typical recovery could see stronger growth eventuate, particularly in the short term.  However, the unwinding of monetary and fiscal stimulus could result in renewed weakness, both here and abroad, and the start of 2010 has been negative for global financial markets.  In New Zealand, a recent downward revision to the rate of economic growth achieved in the last business cycle could have implications for how fast the economy is able to grow once the recovery is secure.

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