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Monthly Economic Indicators

Executive Summary

  • Households remain cautious, limiting their spending and borrowing
  • The labour market reaches a turning point as employment expands
  • Firms continue to experience a strong rebound in activity
  • European sovereign debt crisis poses a risk to growth ahead

Data released in May shows that households remain cautious, by limiting spending and reducing debt, despite the ongoing recovery of the New Zealand economy.  Retail sales posted a modest 0.2% rise in volumes in the March quarter, suggesting that private consumption growth may contribute less to March quarter GDP than predicted in our Budget Update forecasts.  Indicators of spending in the coming months, such as Electronic Card Transactions, suggest consumers are likely to remain cautious in the June quarter as well, consistent with the slight GST revenue shortfall in April.

Credit data in April provide further evidence that cautious spending behaviour has resulted in a reduction of consumer debt.  Consumer-related debt in April was 3.1% lower than in the same month in 2009.  In addition, growth in the stock of housing-related debt has weakened considerably, pointing to a fall in housing market activity.

The labour market reached a turning point in the March quarter, as shown by an unanticipated 1.1%pt fall in the unemployment rate to 6.0%.  A large lift in employment, combined with a steady participation rate, led to a dramatic fall in the number of people unemployed.  Meanwhile, March quarter wage growth moderated by more than expected, which is likely to be influencing consumers’ spending decisions.  Recent labour market developments are discussed in more detail in this month’s Special Topic.

In contrast to households, firms are experiencing a strong rebound in activity.  The National Bank Business Outlook survey showed that firms’ expectations of their own activity in the year ahead are at their highest reading since May 1999, suggesting a substantial rise in output in 2010.  In addition, the BNZ-Business NZ Performance of Manufacturing Index indicates that manufacturing activity continues to expand strongly.

Higher commodity prices and strong world demand for New Zealand’s exports helped to post the first annual merchandise trade surplus since July 2002.  Meanwhile, subdued domestic demand and a higher exchange rate have dampened import payments.

Recent international economic data show that the world economic recovery is gaining momentum, resulting in the OECD revising up their forecasts for world growth.  However, an escalation of European sovereign debt problems has raised concerns around the sustainability of the recovery.

On balance, we still expect March quarter GDP growth of 0.8%, although slower consumption growth provides some downside risk.

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