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Monthly Economic Indicators

Executive Summary

  • The pace of growth is expected to slow in the second half of 2012, following a solid start to the year...
  • ...adding downside risk to Budget 2012 quarterly forecasts...
  • ...but medium-term outlook still positive, driven by Canterbury rebuild and terms of trade
  • The global picture remains soft, with risks skewed to the downside

After a solid start to 2012, real GDP growth is likely to have slowed in the second half of the year, with a number of indicators softening. Both business and consumer confidence have eased in recent months, with activity indicators also weakening. It is difficult to pinpoint a single reason for the decline in sentiment and it is likely to be a result of a combination of factors, including ongoing concerns around the global situation, the elevated New Zealand Dollar (NZD), and uncertainty around the timing of the Canterbury rebuild.

Pricing pressures were soft in the September quarter, with annual headline inflation falling below 1.0% for the first time since 1999. Tradables prices were the primary driver of the low outturn, falling 1.2% annually, with the high NZD and declining commodity prices over the last year behind this. Non-tradables prices were 2.3% higher annually, with insurance costs, a hike in the tobacco tax, electricity prices and local-authority rates the main drivers of the increase. Inflationary pressures are expected to pick up over the next few years as the NZD depreciates, unemployment falls and spare capacity is absorbed. The Canterbury rebuild may also add some pricing pressures, as supply becomes more of a constraint.

The global outlook remained broadly stable during October, with little progress made in the resolution of the euro crisis. Divergences in growth rates between countries became increasingly apparent, with strong growth in Australia, moderate growth in the both the US and New Zealand, but poor growth in much of Europe. While extreme downside risks are now much less likely, overall risks remain skewed to the downside.

This month’s special topic examines the outlook for the global economy, focussing on the recent International Monetary Fund’s (IMF) World Economic Outlook (WEO). The IMF acknowledges a slowing in global growth and notes the large downside risks remaining around the euro area and the fiscal cliff in the United States.

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