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Monthly Economic Indicators

Executive Summary

  • Developments in March confirmed that economic weakness in the second half of 2010 will extend into 2011
  • Exporters and the Balance of Payments continue to benefit from high commodity prices as international conditions remain supportive, albeit with increased risks
  • Reinsurance inflows from both the September and February earthquakes are pushing the current account balance towards surplus

February's Economic Indicators we presented our latest forecasts for the New Zealand economy, including our initial assessment of the impact of the February earthquake. Developments in March confirmed our view that the economy was considerably weaker over the second half of 2010 and early 2011 than we had expected in last year's Half Year Update. Lower than expected household spending on consumption goods and housing were the main drivers of the weaker outturn, with some offset from stronger exports.

Falls in business and consumer confidence were expected and echoed the downbeat tone of our business talks. Business opinion in this round of visits was clearly less positive than our last talks in September 2010. Earthquake effects had a large influence on the sentiment of the firms that we visited. Exporters we visited, and those surveyed in the National Bank's Business Outlook, were much more positive about the outlook. Our first Special Topic summarises the main messages from our March round of business talks.

The relatively strong export performance was reflected in the external accounts, which posted the largest goods surplus in a decade, and in the merchandise terms of trade, which rose to 37 year highs in December. The external accounts are also benefiting from reinsurance inflows arising from damage caused by September's earthquake. In the December accounts these inflows were revised up to $3.6 billion from $1.7 billion previously. The March accounts will likely include initial estimates of the value of reinsurance claims from February's earthquake. Over time we expect the combined value of reinsurance inflows to rise to around $9 billion, sufficient to push the current account balance into surplus for the first time in 37 years.

Export prices continued to rise over the month, despite a fall in dairy prices. The international outlook remains positive, albeit with increased risks from developments in Japan, North Africa and the Middle East. Our second Special Topic looks at the economic impacts of the Japanese earthquake on Japan and New Zealand.

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