Weekly Economic Update - 16 October 2020

Weekly Economic Update 16 October 2020#

COVID-19 test numbers in New Zealand now exceed the one million mark, with no community transmission detected for over three weeks. House prices continued to rise in September, with the number of sales recovering strongly from lockdown. Card spending also recovered strongly in September as alert level restrictions eased, although there may be some signs that the bounce-back is tapering off. Food prices eased and rents edged up. Continued border restrictions keep net migration at historic low levels.

The International Monetary Fund released updated forecasts, and now expects a less sharp contraction in 2020, though the recovery is expected to be long and uneven. Daily new cases of COVID-19 continue to increase in Europe, which has led to some tightening of mobility restrictions. In Australia, consumer confidence improved to above pre-pandemic levels and the unemployment rate increased marginally.

Total COVID-19 tests exceed one million#

The total number of COVID-19 tests conducted in New Zealand surpassed one million late last week, half of which were conducted since 10 August. There have been no new cases reported in the community since 24 September (Figure 1). There are still no active COVID-19 cases in the community, with all 42 active cases in managed isolation at the border.

Figure 1: Daily COVID-19 cases by source

Source: Institute of Environmental Science and Research

Household spending remains strong…#

Total electronic card spending rose 3.2% annually in September with retail card spending up 7.3%. Spending rose in all core industries except for hospitality, with alert level restrictions particularly impacting this sector. In the month of September, retail spending rose 5.4%, with all retail industries except for consumables recording gains. Spending was boosted in September by Auckland moving to Alert Level 2 and the rest of the country moving to Alert Level 1.

...but recent data points to a possible slowing#

While it is possible that spending will remain elevated in coming months following Auckland's move to Alert Level 1 as the holiday shopping season approaches, high-frequency card spending data suggest that spending has not fully recovered under Alert Level 1 in Auckland, and that spending in the rest of the country has also begun trending down (Figure 2). The daily data is volatile and subject to revision, so it is not yet clear whether the downward trend will persist.

Figure 2: Card spending compared to AL1 average

Source: Paymark and Verifone data via Data Ventures

Income support continues to fall#

In the week to 9 October, the number of people receiving the COVID-19 Income Relief Payment (CIRP) fell by 834 as Jobseeker Support rose by 232. Total income support numbers (Jobseeker and CIRP) fell by 600 people, to 215,400. The weekly proportion of cancelled Jobseeker grants where the recipient had obtained work has been trending up since June (Figure 3).

Figure 3: Jobseeker cancellations by selected reason

Source: Ministry of Social Development

House sales and price growth remains strong…#

The REINZ house price index rose 1.8% in September to be up 11.1% from a year ago with strong demand at a time of low inventory levels driving the rise in house prices (Figure 4). In the September 2020 quarter, total house sales were up 31.0% from a year ago, with low inventory levels reported across the country.

Figure 4: House price index and number of sales

Source: REINZ

Lending statistics from the Reserve Bank indicate that first home buyers and property investors have been driving the increase in demand, with total lending to these two groups higher than they were a year ago. Along with record low mortgage rates and the temporary removal of loan to value ratio restrictions, demand is being supported by a combination of repurposed holiday funds due to the restrictions on international travel, returning New Zealanders and a desire to get into the market before prices rise further, according to REINZ. The strength in the level of demand can be seen in the days to sell measurement which, at an average of 32 days to sell, is the lowest September result for 3 years.

The resilience in the housing market seen in the last few months may not be sustained. In the months ahead, continued uncertainty around future household income flows, the end of some policy support measures, and slower population growth from continued border restrictions are expected to weigh on house price growth. Inventory levels generally rise in the warmer months of the year, which may provide some degree of ‘correction' on the supply side of the equation, producing further downward pressure. Continued accommodative monetary policy is expected to provide some offset, with reduced debt servicing costs and the temporary removal of the loan to value restrictions also supporting demand.

Food prices are lower as vegetable prices fall…#

Food prices fell 0.5% in September to be up 3.1% in the year to September. Much of the fall was driven by lower prices for fruit and vegetables, which fell 2.9% in the month. Grocery food and non-alcoholic beverage prices also fell while meat, poultry and fish rose 0.7%.

Rent prices continued to rise, with the stock measure of rental prices up 0.2% in September to be 3.3% higher in the year to September.

…and net migration remains low#

In the five months from April to August 2020, net migration is provisionally estimated at 1,700, made up of a net gain of 5,200 New Zealand citizens and a net loss of 3,500 non-New Zealand citizens. Over the same five months in 2019 there was a provisionally estimated net gain of 21,500 people.

Figure 5: Migration

Source: Stats NZ

IMF upgrades global outlook#

The International Monetary Fund (IMF) released its October World Economic Outlook (WEO) on Wednesday. The global growth outlook has been upgraded to a contraction of 4.4% in 2020, compared to a 4.9% fall in the June WEO Update. This upward revision reflects better than expected June GDP outturns in developed economies as countries recovered more quickly following the easing of mobility restrictions. In 2021, the IMF forecasts global growth at 5.2%, slightly lower than in June due to the smaller contraction in 2020, but still leaving global GDP only 0.6% above that of 2019. Social distancing measures are assumed to continue into 2021, after which an increase in vaccine coverage will allow for their removal.

Source: IMF October WEO

Following the recovery in 2021, the IMF forecasts a gradual slowdown in global growth to around 3.5% in the medium term. Government debt is projected to increase substantially, the servicing of which will be made more difficult by a projected decline in potential output, due to scarring effects and the need for structural changes. The IMF acknowledged that the uncertainty around their baseline forecasts is “unusually large”.

UK intensifies restrictions amid rising cases…#

New COVID-19 cases have continued to increase in a number of European countries. United Kingdom daily case numbers reached an all-time high of almost 23,000 on 4 October and have since hovered at around 15,000. The government has revealed a new three-tier alert system of ‘medium', ‘high', and ‘very high'. The Liverpool City Region (population of 1.5 million), has been placed under the highest alert level. This means that bars that do not serve meals have to close, households are not allowed to socialise with each other, and people are advised against travelling.

…as unemployment rate increased#

The UK's unemployment rate increased to 4.5% in the three months ending August compared to 4.1% in the previous three-month period. Employment is down by around 500k people since the start of the pandemic, with around 60% of these falling in the 16-24 age group. While total hours worked recovered by 4.2% in the most recent quarter, it is still down 15% compared to pre-pandemic levels.

Australia consumer confidence rises …#

The Westpac-Melbourne Institute consumer sentiment index jumped by 11.9% in October to 105 points, its highest level since July 2018 (Figure 6). The index has recovered over the past two months to finish around 10% above the level seen in before the pandemic. This is the quickest recovery in consumer confidence following a downturn in the history of the series. The improvement in confidence may be due to a positive response to last week's Federal Budget and the success in containing COVID-19.

Figure 6: Australia consumer confidence

Source: Haver

…while unemployment rate increased#

The unemployment rate increased to 6.9% in September from 6.8% in August, with the number of unemployed people rising by 11,300 (1.2%). The number of employed people fell by 29,500 (0.2%) and the labour force participation rate fell from 64.9% to 64.8%. Hours worded increased by 0.5%, but is still down 5% on an annual basis.

High-Frequency Indicators (Domestic)#

Traffic Movement#

Source: Waka Kotahi NZ Transport Agency

Freight Movement#

Source: Waka Kotahi NZ Transport Agency

Electricity Demand#

Source: Electricity Authority

Retail Spending#

Source: Paymark and Verifone data via Data Ventures

Jobseeker and Income Support Recipients#

Source: MSD

Fiscal Support: Wage Subsidy (paid)#

Source: MSD

High-Frequency Indicators (Global)#

Trade Weighted Index#

Source: RBNZ

Volatility Index#

Source: Haver

US Activity and Equities#

Sources: Federal Reserve Bank of New York, Haver

Labour Markets#

Source: Haver

COVID-19 Cases#

Sources: World Health Organisation/Haver

World Commodity Prices#

Source: ASB

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