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Monthly Economic Indicators

Executive Summary

  • Real GDP growth remained moderate in the March quarter although nominal GDP continued to grow at a solid pace
  • The current account deficit widened to 3.1% of GDP despite a 40-year high in the terms of trade
  • Falling oil prices are leading to declines in global inflation.

Real GDP grew 0.5% in the March 2017 quarter, well below our Budget forecast of 1.1%. Despite the modest gain in real GDP, growth in nominal GDP, which underpins our tax forecasts, exceeded our expectation of a 1.1% rise, rising 1.4% in the quarter. However, downward revisions to growth in prior quarters meant nominal GDP growth in the year ended March, of 5.6%, was a little weaker than the 5.9% forecast in the Budget Update. Meanwhile, tax revenue in the fiscal year to April was a little ahead of forecast, as it has been consistently this fiscal year. 

There were clearly some temporary factors restraining growth in the March quarter, including disruption from the Kaikōura earthquakes, the sharp fall in non-residential building investment, and the decline in dairy exports.   

Weakness in the trade accounts was the main driver of the wider current account deficit revealed in the Balance of Payments release for the March quarter. Export values have recovered in recent months and we expect the current account deficit to track broadly sideways over the remainder of the year.   

Indicators of activity in the June quarter point to continued solid growth in domestic demand. Business and consumer sentiment remain buoyant, export commodity prices are high, growth in international visitor arrivals is continuing, and net immigration is at a record high. In contrast, activity in the housing market has eased. 

Internationally, the UK elections resulted in a hung parliament and Brexit negotiations have begun. Oil prices continued to ease in the month to be down more than 20% since the start of the year. Falling oil prices are being reflected in lower headline inflation globally and core inflation is also easing, adding to uncertainty about the future course of monetary policy. New Zealand’s trade weighted exchange rate TWI has appreciated by around 5% since the middle of May, mostly on US dollar weakness. Lower international oil prices, combined with a higher exchange rate will place downward pressure on domestic inflation over coming months.     

Lower oil prices will also provide a boost to New Zealand’s terms of trade, which reached a 40-year high in the March 2017 quarter. Our Special Topic looks at the drivers of the current cycle. 

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