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Monthly Economic Indicators

Executive Summary

  • Activity indicators point to growth picking up in the second half of 2011, consistent with Treasury's PREFU forecasts
  • High headline CPI inflation eases and underlying inflation more subdued
  • Financial markets focus on European debt crisis developments, with progress made towards an orderly resolution 
  • Treasury's PREFU is close to the average of other forecasts

Activity indicators in business surveys suggest that economic growth will pick up in the September and December quarters of 2011, following on from modest but stronger than-expected-growth over the first half of 2011. These indicators have generally fallen back recently, but are consistent with growth at or above average levels and have reinforced our Pre-election (PREFU) forecasts of an expected 0.9% growth in both the September and December quarters.

The anticipated pickup in quarterly growth would take the annual average rate from 1.5% in the June quarter 2011 to 2.8% in the June quarter 2012. Growth then rises to 3.4% in the June quarter 2013 as the Canterbury earthquake rebuild gathers momentum. We have pushed back our estimate of when the rebuild will substantially begin from the first to the second half of 2012, which is supported by the latest business surveys. Economic conditions in Canterbury are beginning to return towards normality and the rebuild dominates the regional economic outlook.

Other forecasters expect a similar growth profile to our PREFU forecasts. This month's Special Topic compares Treasury's latest forecasts with other forecasters.

Indicators of the effect that the Rugby World Cup (RWC) has had on spending are mixed at this stage. Despite electronic card transactions not showing an expected RWC boost in September, we still expect the RWC to boost GDP growth by 0.3% points. This expectation is backed by an estimated 80,000 visitors having arrived for the RWC by September, foreign spending being picked up in Paymark and credit card data, and ticket sales reaching their $268.5 million target.

Annual headline inflation eased from 5.3% in the June quarter to 4.6%, as the September quarter outturn came in below the market’s and our expectations. There were surprising falls in communications, electricity and travel prices in the quarter. The annual inflation figure is still boosted by the 1 October 2010 GST rate rise from 12.5% to 15% and if items were still taxed at 12.5%, annual inflation would have been 2.5%. Taking into account the GST rate rise and other one-off factors results in underlying inflation around the middle of the Reserve Bank's 1-3% target band.

Global data releases were mixed during October and markets instead focused on debt crisis developments in Europe. A recession in the US looks less likely and Chinese data have supported the expectations of the positive impact the country will have on New Zealand. Progress has been made towards an orderly resolution of European debt problems, with an initial agreement to recapitalise banks, increase the bailout fund and take 50% haircuts on Greek debt. Recent global volatility has had a limited impact on New Zealand so far and the latest improvement in sentiment on hopes of European debt resolution has been positive for financial markets.

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