Weekly Economic Update - 1 May 2020

High-Frequency Indicators (under development)#

Traffic Movement

Source: Waka Kotahi NZ Transport Agency

Border Crossings

Source: Customs NZ

Job Seeker Support

Source: MSD

Freight Movement

Source: Waka Kotahi NZ Transport Agency

Retail Spending

Source: Stats NZ

Fiscal Support: Wage Subsidy (paid)

Source: MSD

Export growth remained strong in March…#

New Zealand’s merchandise exports increased strongly in March, despite the global and domestic effects of the COVID-19 pandemic.

Seasonally adjusted exports rose 4.5% to $5.3 billion in March, driven by higher fruit and meat values. Dairy export volumes decreased by 6.3%, but the value decline was only 3.9% due to higher prices. Meat export volumes rose by 13.9% while values rose by 10.8%. Fruit exports rose by 55.2% in value terms and 14.3% in volume terms, driven mostly by higher exports of gold kiwifruit.

Dry weather has seen a reduction in dairy production volumes as well as higher slaughter numbers in recent months. NIWA soil moisture deficit indicators show that drought conditions throughout much of New Zealand has increased significantly compared to the same time last year (Figure 3).

Figure 3: Soil moisture deficit

Source: NIWA

Forestry exports to China continued to fall in March due to the COVID-19 restrictions and associated fall in demand, but exports of other goods have held up reasonably well. New Zealand exporters have also been able to re-direct some of their products to other markets.

Seasonally adjusted imports rose by 11.6%, led by an increase in the volume of petroleum product imports. Consequently, the seasonally adjusted trade balance fell from a $177m surplus in February to a $161m deficit in March (Figure 4).

For the March quarter, seasonally adjusted export values were 1.4% higher than the previous quarter, while import values were 3.1% lower. In comparison, we had expected export values to be roughly flat, and imports to decline by 6.2%. The trade balance is therefore weaker in the March quarter than we had forecast.

Figure 4: Overseas merchandise trade

Source: Stats NZ

In the three months ending March, imports of capital goods fell 9.8%, consumption goods imports fell by 3.2% and intermediate goods imports rose 2.8% compared to a year ago.

From April onwards, we expect that the lockdown restrictions announced in many countries around the world will lead to a decline in New Zealand’s merchandise exports. However, Fonterra expects sales to China to return to near-normal by May/June. At the same time, lockdown measures in New Zealand are expected to result in a fall in domestic demand, which should be reflected in lower imports.

…and business confidence fell less than expected#

Headline business confidence fell 3 points to -67% in April from March in the ANZ Business Outlook Survey. This is a small improvement versus the preliminary April read (released earlier this month) of -73%.

A net 55% of firms expect weaker activity for their own businesses (compared to the preliminary reading of -61%). Real sector own activity is the weakest at 67% expecting weaker activity.

Expected profitability, investment and employment intentions all saw small improvements from their preliminary April read, however, all still remain negative. A net 51% of firms intend to lay off staff, with redundancies expected across all sectors.

Inflation expectations rose to 1.5%, compared to 1.3% in the preliminary read.

Globally, restrictions are easing…#

In the United States (US), confirmed COVID-19 cases exceeded 1 million this week. Worldwide, growth in cases is slowing and more countries are easing restrictions on economic activity (Figure 5). In Spain, one of the countries hit hardest, the plan is to ease restrictions in four stages until normality resumes by the end of June, at the earliest.

Figure 5: Confirmed COVID-19 cases per million people (selected countries)

Source: Johns Hopkins University (NZ includes probable cases)

…but the data are worsening#

In the US, March quarter GDP was 1.2% lower than in the previous quarter, with personal consumption down 1.9%. The worst is yet to come, with expectations that June quarter GDP might fall by 7% to 8%.

The magnitude of the likely June quarter GDP contraction is shown by the April G-4 (US, euro area, Japan and UK) flash PMIs, which fell sharply especially for the services sector. The G-4 all-industry output composite fell to 22.3 for April, from 36.7 in March; it had stood at 52.1 in January. With restrictions on activity likely to be loosened during May, next month’s PMIs should rebound.

In South Korea, March quarter GDP fell 1.4% from the previous quarter. This is the weakest quarterly result since 2008, but it is much milder than the peak virus impact in many countries, reflecting less stringent public health measures. Weaker private consumption drove the fall, but construction, inventories and net exports provided a partial offset. A shift in the balance of demand is expected in the June quarter as the relaxation of social distancing measures supports consumption and external weakness hinders exports. Nonetheless, the worst of the economic effects of COVID-19 are likely to be behind the nation.

Australian contraction expected to be similar to NZ#

Last week, the Reserve Bank of Australia (RBA) said it expects GDP to fall by around 10% over the first half of 2020, slightly lower than the fall for New Zealand GDP expected by major banks here over the same period. Table 1 summarises some of the social distancing measures that have been put in place in Australia and New Zealand. It is difficult to know exactly how behaviour might have differed in each case under different lockdown conditions. The move to Alert Level 3 in New Zealand has since expanded the range of activities allowed.

Table 1: New Zealand and Australian lockdown measures (at strictest levels)

Source: Johns Hopkins University, Official government websites, Australian Broadcasting Corporation

Provided restrictions ease over coming weeks, GDP should rebound appreciably in the September quarter in both counties. The RBA expects Australian annual average growth to be around -6% to -7% in 2020, while NZ’s major banks expect NZ growth of about -8½%.

Tables#

Data in Italic font are provisional.
... Not available.

(1) Seasonally Adjusted
(2) Ordinary time, all sectors
(3) Westpac Mcdermott Miller
(4) Quarterly Survey of Business Opinion
(5) Reserve Bank (11am)
(6) Daily close

(1) Seasonally adjusted
(2) Case-Shiller Home Price Index 20 city
(3) The Conference Board Consumer Confidence Index
(4) Cabinet Office Japan
(5) European Commission
(6) Nationwide House Price Index
(7) Australian Bureau of Statistics
(8) Melbourne/Westpac Consumer Sentiment Index