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Monthly Economic Indicators

Executive Summary

  • Solid GDP growth in the June quarter was driven by construction, with support from the services sector
  • The current account deficit narrowed and nominal GDP growth was strong, despite a decline in the terms of trade
  • Although most central banks held policy rates unchanged in September, the landscape of global monetary policy has changed with lowered prospects for future easing, despite continuing economic weakness

Key economic data releases in September point to stronger GDP growth over 2016 than expected in the Budget Economic and Fiscal Update.  Real GDP growth for the June quarter was largely in line with market expectations but stronger than in the Budget Update.  However, the drivers of growth were as anticipated, with construction making a particularly strong contribution, supported by services, and high population growth, chiefly from high net migration, underpinning aggregate demand more broadly.  Overseas tourism was less prominent in the June quarter but remains a key driver of annual growth.  Nominal GDP was also a little higher than forecast for the 2016 fiscal year, in line with the positive tax forecast variance in the 11 months to May.

Indicators for activity since June have generally been positive.  Construction, both residential and non-residential, is expected to underpin growth through the remainder of 2016, although consents data indicate that the pace of growth may ease a little from recent quarters.  Consumption indicators for the September quarter have been more mixed, with electronic card spending falling but consumer confidence lifting.  Low interest rates, high net migration and solid labour income growth should sustain aggregate private consumption growth at a reasonable rate through the second half of 2016.  House price growth remains high.  This month’s special topic provides a more detailed look at recent household debt developments.

The annual current account deficit narrowed in the year to June 2016.  The goods deficit narrowed slightly, as a lift in net export volumes offset the fall in the terms of trade in the quarter.  The primary income deficit also narrowed, chiefly on smaller investment income outflows.  The services surplus remains around its long-term average, thanks to rapid growth in international tourism in previous quarters, providing a sizeable offset to the other components of the current account.

The Reserve Bank left the Official Cash Rate (OCR) unchanged at 2.0% in September and maintains an easing bias. One further cut is fully priced in for November.  The NZD remains close to a 17-month high.
Although most central banks held policy rates unchanged in September, the landscape of global monetary policy has changed with slightly more flexible policy targets in Australia and Japan, and lowered prospects for future easing by the ECB, BoJ and BoE, despite continuing economic weakness. The US Federal Reserve remained on hold.  Concerns about less monetary easing in the future and heightened risk aversion led global financial market volatility to rise in September.

Global data were mixed for September.  US indicators of September quarter activity have been mixed, disappointing analysts, while Japan’s outturns were also soft.  Australia’s June quarter GDP growth eased but China’s growth recovered in August.  There was mixed activity in the euro area, although UK growth appears unimpeded by Brexit so far.

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