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Monthly Economic Indicators

Executive Summary

  • Moderating economic indicators point to growth slowing to a more sustainable, but nonetheless solid pace
  • Inflation remains low and continues to fall below expectations, despite the economy appearing to be operating near capacity
  • International economic developments point to uneven growth across major economies, while geopolitical risks continue to weigh on markets

Both business and consumer confidence continue to soften but remain at historically high levels with business confidence recovering from the previous month’s decline in October.  For businesses, high confidence continues to bolster employment and investment intentions while capacity utilisation also remains at high levels.  Activity levels for both the manufacturing and service sectors are high.  While consumers remain confident about the present, confidence about the future has waned as the economy in general and the housing market in particular have slowed. 

Annual inflation fell to 1.0%, which is below market expectations and at the bottom of the RBNZ’s target band.  Falling tradables prices, thanks to a relatively strong exchange rate and weak international inflation, continues to weigh on inflation.  Increases in housing and housing utility prices were the main driver of increases in the quarterly CPI.  Despite the recent weak outturns, inflationary pressures are expected to increase as the economy continues to operate near capacity, and the drag on inflation from tradables prices should reduce now that the exchange rate has come off earlier highs.

The housing market is cooling with increases in house prices slowing and sales lower than a year ago.  Some of the recent weakness in sales may have been due to election uncertainty as well as anticipation of property revaluations in Auckland in October.  Although the proportion of new high loan-to-value ratio mortgages continues to rise, it remains some way below the “speed limit” imposed by the RBNZ as banks continue to adjust their portfolios.

Consumption is holding up despite lower consumer confidence.  Electronic card transactions increased over the quarter despite a modest fall in September.  While the nominal consumption outlook remains modest, low inflation and a relatively strong exchange rate of late have boosted consumers’ purchasing power, which will help to keep real consumption growth solid.

Growth in the major economies remains uneven, with global markets highly volatile and sentiment fragile.  The euro area remains subdued, with the ECB’s asset purchase programme providing only limited support to markets so far.  Both the US and the UK continue their steady recovery, moving closer to a point where they can begin normalising monetary policy.  The Chinese economy continues to slow, with the government introducing targeted stimulus as a result.  Geopolitical risks remain elevated, as Ebola concerns are added to the ongoing conflict in the Middle East and tensions in Ukraine.

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