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Monthly Economic Indicators

Executive Summary

  • The economy is recovering slightly more strongly than forecast in the Half Year Update but the impact of the recession will continue to be felt for some time
  • Economic growth expected to strengthen further in the year ahead, as reflected in higher confidence, although may be weaker in the current quarter
  • Weak productivity growth in recent years may have implications for potential growth

The recovery in the New Zealand economy accelerated at the end of last year. Real production GDP rose 0.8% in the December 2009 quarter, the largest increase since the same quarter in 2007 and the first to exceed population growth in two years. Growth in the December quarter became more broad-based as some industries, notably manufacturing, showed their first significant growth for several quarters. The acceleration of growth was in line with the experience of many other developed nations.

Business confidence readings point to ongoing recovery in the economy. Although the recovery is expected to continue, the rate of growth in the March quarter may not be as strong as in December. Consumer spending growth may be slightly lower this quarter as a number of negative factors, including increases in long-term interest rates and higher petrol prices, have weighed on consumers since the start of the year. The Treasury’s business and tax talks, summarised in this month’s special topic, showed domestic conditions were relatively soft in early 2010 but that export demand had picked up.

The recovery in the global economy has continued and the outlook has improved. The global recovery has already seen a lift in world spot prices for our key commodities, up by nearly half in the year to February 2010 and nearing the historic highs of mid-2008. The lift in commodity prices is expected to boost New Zealand’s terms of trade significantly, which began in the December 2009 quarter. For non-commodity exporters, a strong Australian economy and lower cross-rate against the Australian dollar have been positive factors.

The annual current account deficit narrowed to an 8-year low of 2.9% of GDP in the December 2009 quarter. However, we expect the current account deficit to widen to over 6% by the end of next year. Such a rise will reflect a recovery in the New Zealand economy and the low rate of domestic saving. The economy remains vulnerable to future shocks because of its high net external liability position, 90% of GDP, despite the recent fall in the current account deficit.

The economy may be recovering slightly more strongly than expected in the Half Year Update, but this recovery has only just begun. Real GDP in late 2009 remains around 2% below its peak two years earlier and there are questions surrounding the sustainable growth rate of the New Zealand economy. Productivity in the measured sector of the New Zealand economy fell sharply in the March 2009 year and may be on a declining trend compared to growth over the 1990s.

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