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Monthly Economic Indicators

Executive Summary

  • March quarter real GDP growth was stronger than expected, driven by construction, tourism and services and underpinned by population growth
  • The current account deficit narrowed, partly owing to an increase in the terms of trade that also supported nominal GDP growth
  • Global market volatility escalated in early June with uncertainty around the speed of US monetary policy normalisation and at the end of the month with the ‘Brexit’ referendum

Key economic data releases over the past month point to a slightly stronger economy than expected in the Budget Economic and Fiscal Update (BEFU).  Real GDP growth was slightly higher than Treasury and market expectations in the March quarter, although data revisions left annual growth in line with Treasury’s expectations.  While the quarterly growth figures were slightly firmer than forecast, there were few surprises in the details which confirmed construction, tourism and services as the key growth drivers, underpinned by high population growth.  Nominal GDP growth was also a little stronger than expected owing to higher real GDP growth and a larger increase in the terms of trade than anticipated.  Tax data in April suggest this momentum in the nominal economy has persisted into the June quarter.

Partial indicators for activity since March have been mixed but on balance look to be positive.  Consumer and business confidence has rebounded in June, while building consent data point to slowing growth in construction.  Annual net migration gains continue to increase although recent monthly data suggest a peak may be near.  House price growth remains high, but is slightly slower than in 2015.

The current account deficit narrowed to 3.0% in the year to March 2016.  The services surplus remains around its long-term average as tourism grew rapidly, and the primary income deficit narrowed.  These movements were partially offset by further widening in the goods deficit.

The Reserve Bank left the Official Cash Rate (OCR) unchanged at 2.25% in June and maintains an easing bias, dependent on data developments. Market analysts expect the OCR to fall further this year following the UK vote to leave the European Union and the New Zealand dollar’s strong rise against the US dollar in June.

Brexit was the main focus of international markets this month, as 52% of UK voters supported a UK exit from the European Union.  This outcome was not widely expected and as a result the pound and equities fell sharply, and the US dollar, Japanese yen, gold and government bonds rallied on safe-haven demand and expectations of more dovish global monetary policy.  Economic developments in advanced economies generally have been mixed, underpinning uncertainty around future global growth. The impact of the UK’s exit from the EU on the New Zealand economy is uncertain, but is not considered likely to be significant, at least in the short term.  This month’s special topic examines the UK vote to leave the EU in more detail, with a focus on its implications for New Zealand.
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