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Monthly Economic Indicators

Executive Summary

  • Recent domestic data and business surveys point to a continuation of solid economic and employment growth over the second half of 2016
  • Consumer price inflation is re-emerging for the first time in two years, although wage inflation remains subdued
  • Initial market optimism on US and global growth prospects under US President Donald Trump has faded as uncertainty has increased

Recent domestic data show economic activity in New Zealand remained strong over the second half of 2016.  Annual average GDP growth was 3.0% in September and partial indicators suggest this momentum will persist into the December quarter and early 2017.  The main growth drivers in the economy remain as forecast in the Half Year Economic and Fiscal Update (HYEFU), with a solid pipeline of construction projects, ongoing high levels of net migration and low interest rates expected to underpin growth in construction, household consumption and export services.  Uncertainty remains over what impact the Kaikōura earthquakes will have but to date consumer and business confidence have not been materially affected.  As more information emerges we will be able to update the initial assessment of the earthquake’s impacts presented in the November MEI special topic.

The annual current account deficit remained unchanged at 2.9% of GDP in September, with a sizable services surplus partially offsetting deficits in the goods and income balances.  Merchandise trade data indicate the goods deficit narrowed slightly by the end of the year.  Dairy prices retraced some of their recent gains in January but otherwise remain much higher than they have been for some time. 

Employment continues to increase at a steady pace, broadly in line with the pace of economic growth.  However, a larger than expected increase in the labour supply, owing in part to a new high for the participation rate, saw the unemployment rate lift to 5.2%.  The presence of spare capacity in the labour market continues to dampen wage inflation, which eased further in the December quarter.

Consumer inflation pressures are emerging after a sustained period of low inflation, both here and abroad.  Headline consumer price inflation in New Zealand lifted to 1.3% in 2016 and business survey measures point to higher prices in coming quarters.  Several of New Zealand’s key trading partners observed a similar pick-up in inflation.  This month’s special topic examines recent inflation outturns and the outlook.

Initial market optimism on US and global growth prospects under US President Donald Trump has faded as uncertainty about the impacts of the administration’s trade policy has increased.  The IMF’s January 2017 World Economic Outlook continues to forecast a faster pace of growth in 2017 and 2018.  However, the IMF sees the balance of risks weighted to the downside, as a result of the risk of increased protectionism and tighter-than-expected financial conditions.

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