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Monthly Economic Indicators

Executive Summary

  • As expected, last summer’s drought weighed on growth in the June quarter...
  • ...but the economy showed signs of underlying momentum and the near-term outlook remains positive.
  • US Fed delays expected start of tapering quantitative easing, leading to a stronger NZD.

The negative impact of last summer’s drought was the main factor behind the slowdown in the pace of quarterly growth to 0.2% in the June quarter. Drought impacts aside, other parts of the economy showed clear signs of momentum – particularly the services sector. Eight of the 11 service industries recorded an increase in activity and the sector as a whole contributed around 1 percentage point to quarterly growth.

The turnaround in the terms of trade since the end of 2012, including a 4.9% rise in the June quarter, underpinned another strong quarterly rise in nominal GDP (1.7%, following a 2.6% increase in the March quarter). The level of nominal GDP was close to that expected in the Budget and year-end tax revenues are expected to be close to forecast. (Financial Statements of the Government for the year ended 30 June 2013 will be released on Monday 7 October.)

The rebound in the terms of trade has also driven an acceleration in growth of real gross national disposable income (RGNDI) – a purchasing power-adjusted measure of national income – with RGNDI up by 1.6% in the quarter. In a reflection of the recent divergence in the performance and outlook for the New Zealand and Australian economies, annual RGNDI growth in the June quarter accelerated ahead of that in Australia.

The current account deficit narrowed to 4.3% of GDP in the June quarter, driven by a narrower income deficit and following a range of revisions to historical data. The narrowing in the annual income deficit mainly reflected lower profits being recorded by foreign-owned companies in both the corporate and banking sectors. This result appears at odds with indicators such as corporate taxes and profitability readings from business surveys, and we expect income outflows to pick up over the second half of the year as momentum in the economy continues to build.

Looking ahead, the near-term outlook for GDP remains positive, with the economy carrying a sizeable degree of momentum into the second half of the year. The outlook is supported by a range of factors, including the ongoing Canterbury rebuild, the turnaround in net migration, and an expected bounceback in the agricultural sector from the drought. All told, the Treasury expects quarterly real GDP growth to accelerate to around 1% in each of the two remaining quarters of 2013.

The US Federal Reserve voted against initiating the widely-expected tapering of quantitative easing in September, which triggered a sharp rise in the New Zealand dollar against the greenback. While recent data outturns in the US have been weaker than expected, this month’s special topic looks at the wider rebalancing of global growth from emerging market to developed economies that has occurred in recent months, and assesses its implications for New Zealand.

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