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Monthly Economic Indicators

Executive Summary

  • Robust labour market and retail sales data point to solid third quarter GDP growth
  • An earthquake on 14 November caused some localised disruption to activity in central New Zealand but nation-wide impacts appear limited
  • Global financial market volatility increased in November, reflecting the unexpected change in the outlook for US economic policy in light of the presidential election

Economic data released over November reinforced the outlook for solid GDP growth over the second half of 2016.  Activity in the third quarter was underpinned by robust growth in the labour market and in retail sales.  Wage pressures remained benign, reflecting the rapid pace of expansion in labour supply and subdued inflation expectations.  Nonetheless, labour income growth remained solid, driven by the increase in employment.

Income growth supported a further expansion in real retail sales in the September quarter, which increased 0.9% from the previous quarter.  Tourism, which also contributed to retail sales growth in the September quarter, showed further strength in October, with the number of visitor arrivals 14.5% higher than the same month a year ago. 

Other indicators of activity in the December quarter were also generally positive, while business and consumer confidence remained high.  Overall, we expect growth over the second half of 2016 to be similar to that recorded over the first half of the year.

Risks to the outlook arose from the large earthquake that occurred on 14 November.  The earthquake caused extensive damage and some loss of life in the Kaikōura and adjoining regions.  The town of Kaikōura, which is an important tourist centre and on the main South Island road and rail network, was extensively damaged and transport links were blocked by large slips.  There was also damage to housing and commercial buildings in Kaikōura and adjoining regions, including Wellington.

While the impact of the earthquake and subsequent aftershocks on the region directly affected is significant, its impact on the economy as a whole is considered likely to be relatively minor at this stage.  The Special Topic this month discusses the likely regional and national economic impacts.

The housing market is a further source of risk to the outlook. The Reserve Bank observed that growth in house prices remained excessive and was posing a risk to financial stability.  Nonetheless, the Bank reduced the Official Cash Rate (OCR) from 2.0% to 1.75%.  The Reserve Bank projected the cash rate to remain at this level over the next two years or so, although it did not rule out the possibility of a further reduction. 

The global economy showed some resurgence of demand according to data released this month, while business activity indicators remained subdued.  There was increased volatility in financial markets arising from an unexpected change in the outlook for US economic policy in the light of the presidential election.

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