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Monthly Economic Indicators

Executive Summary

  • The New Zealand economy picked up pace in the second half of 2013, posing near-term upside risks to the Treasury's Half Year Update forecasts...
  • ...and bringing us closer to the start of the monetary tightening cycle.
  • Tapering gets underway in the US, while vulnerabilities in emerging markets re-appear.

The New Zealand economy broke into its stride in the second half of 2013, following a drought-affected first half of the year. Real GDP grew by 1.4% in the September 2013 quarter, driven by a bounce-back in agricultural production, and confirmed the near-term upside risks to the Treasury's Half Year Update forecasts.

It will be difficult for the agricultural sector to repeat a similar-sized boost to GDP growth in the December quarter, but all signs indicate that the economy continued to expand at an above-potential rate going into 2014. The NZIER's Quarterly Survey of Business Opinion (QSBO) reached an almost 20-year high in the December quarter and other survey indicators remain elevated. Meanwhile, the strong showing from Electronic Card Transactions in the December month added to the evidence of buoyant consumer spending in the final quarter of the year.

All told, the slack in the economy that has persisted since the 2008/09 recession now looks to have largely been used up and we are nearing the start of the monetary tightening cycle. While the Reserve Bank held the Official Cash Rate (OCR) unchanged at its first interest rate decision of 2014, it is widely expected to hike rates in its March review.

With the timing of the first OCR hike now seemingly settled, market attention can focus on the extent of the tightening cycle and its interaction with the macro-prudential loan-to-value lending restriction introduced in October. The latter appears to be having its intended effect of dampening demand in the housing market, but the near-term outlook for the market remains complicated by underlying factors - particularly the ongoing turnaround in net migration flows.

A faster-than-expected US recovery in late 2013 led the Federal Reserve to commence the reduction of quantitative easing in January. The modest recovery in the euro area also gained pace. However, key risks around developing economies remain, with recent financial volatility eliciting responses from their central banks - most notably in Turkey.

It has been one year since Japan began to implement 'Abenomics' - the three-pronged economic plan aimed at reviving the economy from almost 20 years of sluggish growth. This month's special topic examines the impact of the measures to date on New Zealand's trade links with Japan.

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