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Monthly Economic Indicators

Executive Summary

  • Real GDP grew by a robust 0.9% in the December 2013 quarter, and the current account deficit narrowed sharply.
  • All signs remain consistent with the economy maintaining significant momentum in the first half of 2014.
  • International economic data were broadly positive, despite financial market jitters.

The two major data releases for the December quarter confirmed previous signs of a strong end to 2013 for the economy. Real production GDP grew by 0.9% from the September quarter and by 3.1% from a year ago, with a continuing broad-based pick-up in activity. Meanwhile, the current account deficit narrowed markedly, to 3.4% of GDP, driven by a surge in dairy export volumes.

All signs remain consistent with the economy maintaining an above-potential pace of growth in the first half of 2014. Confidence in the business sector remains buoyant: the ANZ’s Business Outlook measure reached its highest level since March 1994 in February and other indicators remain rooted in expansionary territory too. It is a similar picture in the household sector as well. Westpac’s seasonally-adjusted consumer confidence measure hit a nine-year high in the March quarter and there are clear signs of a pick-up in discretionary spending.

Ongoing increases in net inward migration flows will also continue to add to aggregate demand in the near term. The Reserve Bank indicated that the 25 basis point increase in the Official Cash Rate (OCR) in March is likely to be the start of a 200 basis point rise over the next couple of years. With interest rates in most developed economies expected to remain at record lows for another year at least, the trade-weighted exchange rate reached a post-float high in the middle of March.

Looking slightly further out, we expect GDP growth to ease somewhat towards the end of the year and into 2015, but to remain at a robust pace. The elevated exchange rate will continue to weigh on exchange-rate sensitive sectors too (not least by further constraining spending by tourists). Meanwhile, the combined 10% fall in global dairy prices over the past three fortnightly auctions is a reminder that dairy prices can go down as well as up.

International economic data from the past month were mostly positive, although credit risks in China and developments in Ukraine caused some volatility in financial markets.

This month’s Special Topic looks at the issue of New Zealand’s trade concentration, particularly in light of China’s rise in importance as a trade partner in recent years.

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