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Monthly Economic Indicators

Executive Summary

  • Real GDP grew strongly in the December 2012 quarter, with broad-based growth...
  • ...leading to solid performance for the NZ economy in the year as a whole.
  • Indicators point to ongoing strength domestically...
  • ...but the impact of the drought, while uncertain, will detract from growth in 2013.

Following a soft patch of activity in the middle of 2012, the New Zealand economy is looking more positive. December quarter GDP rose a robust 1.5%, to be 2.5% higher for the year, its strongest growth rate since 2008. Growth was broad based across industries, with the forestry and logging sector performing especially well in the quarter and construction picking up as expected. However, while real GDP was strong in the quarter, nominal GDP continued to be soft, declining for the third time in four quarters, as the terms of trade continued to fall and pricing pressures remain weak in the economy. The annual current account deficit widened from 4.7% to 5.0% of GDP in the December quarter, driven by lower export receipts owing primarily to weaker prices.

The strong December quarter GDP result helped to contribute to a solid 2012 year overall for growth. The main contributors on the expenditure side were consumption and investment, including both business and residential investment. Net exports only had a slight positive contribution in the year, as the high exchange rate made imports more attractive. One factor detracting from the solid growth in 2012 has been the weak performance of the labour market. The unemployment rate remains elevated, and employment growth is subdued. The implication is that productivity growth in 2012 was a very strong 3.3%. The labour market is expected to show some more strength later in 2013, particularly as the Canterbury rebuild continues to ramp up. We received additional evidence of this in our recent business talks; we briefly discuss the outcomes of these in our first Special Topic this month.

Indicators released during March point to ongoing strength in the first half of 2013. Activity indicators for the manufacturing and services sector rose, while business and consumer confidence continued to improve. However, the impact of drought on the economy will be a key offset. This month’s second Special Topic provides a brief overview of Treasury’s current assumptions around the impact of the drought.

Global data were generally positive during the month, with US data generally solid, Australian data improving, and Japanese sentiment rising. However, the euro area remains weak, with risks re-emerging around the euro area crisis. Cyprus received a last-minute bailout, while Italy’s political uncertainty continued.

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