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Monthly Economic Indicators

Executive Summary

  • Key economic data releases in July point to stronger economic growth in the June quarter than expected in the Budget Economic and Fiscal Update
  • Business surveys point to robust economic activity, supported by stronger-than-expected export volumes and consumer spending
  • Weak underlying price pressures despite domestic strength
  • Global financial markets stabilised in July but the economic outlook is slightly weaker

Key economic data releases over the past month point to a stronger economy in the June quarter than expected in the Budget Economic and Fiscal Update.  Business and consumer confidence are both running above their long-term averages, supported by external demand and consumer spending outturns that were above expectations. Continuing high net immigration (which looks to have peaked), a record number of visitor arrivals and rising export values in the quarter boosted economic activity, only partially offset by the slow recovery in dairy prices and the high NZD.

Price pressures remain weak, despite high levels of firm capacity utilisation. Consumer price inflation was 0.4% in the June quarter and year to June, driven largely by housing, petrol and seasonal price shifts, without which inflation would have been very low.

Household borrowing continues to grow following rapid house price rises. Markets expect tighter loan-to-value restrictions proposed by the RBNZ will pave the way for an OCR cut at the RBNZ’s review on 11 August.

The positive June external trade data, supported by the above-average QSBO survey responses and the rebound in consumer spending, pose a significant upside risk to the Budget Update forecast of 0.6% growth in production GDP in the June quarter.

Global financial markets recovered over July, supported by positive economic developments, including stronger-than-expected US employment and China’s GDP, and by expectations of monetary easing in many economies. Economic conditions in Australia improved at a gradual pace. However, euro area activity remains soft and Japan’s growth is expected to slow, with price pressures continuing to be weak; the longer-term global outlook still faces structural challenges and financial sector risks, with Brexit added to the mix.

This month’s special topic examines recent changes to the Household Labour Force Survey methodology which will be adopted in this quarter’s release.

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