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Monthly Economic Indicators

Executive Summary

  • Real GDP rose 0.8% in the December quarter, the same as Treasury’s HYEFU forecast
  • Partial indicators for 2015 remain consistent with a solid growth outlook
  • Nevertheless, the domestic inflation outlook remains weak with the RBNZ reaffirming their on hold policy stance in the March Monetary Policy Statement

Real production GDP rose 0.8% in the December quarter, the same as Treasury’s HYEFU forecast. Growth was driven by services activity, reflecting a surge in international tourism expenditure.

Indicators continue to support the outlook for strong activity in the first half of 2015. Elevated net migration inflows and a high level of consumer and business confidence, partly reflecting lower fuel prices and easy credit conditions, continue to point to solid growth in consumption and investment. Drought conditions are expected to have a small negative impact on agricultural output in 2015.

However, nominal GDP growth was soft in the December quarter at 0.4%, partly owing to a fall in the terms of trade. Annual inflation is expected to remain weak in 2015 as the impact of lower oil prices flows through, pointing to weaker growth in nominal GDP in the near term. The Reserve Bank left the OCR unchanged at 3.5% in March and forecast a period of stability in the OCR, while revising down its inflation forecasts amidst weaker household inflation expectations.
The annual current account deficit widened to 3.3% of GDP in the December quarter, up from 2.6% in the September quarter. This was driven by a lower goods surplus, as the fall in dairy prices over 2014 dampened export values and imports grew. Dairy prices have recovered 16% this year despite falling in the second half of March, and Fonterra retained its farm gate milk price forecast at $4.70 per kilogram of milk solids.

The US recovery has moderated from 2014, owing partly to the harsh winter and a stronger USD. At the same time, demand has picked up in the euro area and Japan. However, China’s growth outlook weakened and the Chinese government lowered its 2015 growth target to around 7%. Expectations of US monetary tightening led to volatility in US markets, while the ECB’s asset purchase programme lifted investor sentiment in the euro area.

This month’s special topic reports on the March 2015 business talks. Treasury officials met with around 30 businesses in Auckland, Wellington and Christchurch to discuss the outlook for the economy. Overall, most businesses were experiencing high levels of activity, especially those with exposure to tourism, and although pricing intentions remain subdued, margins and profitability remain healthy thanks to investment in productivity improvements.

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