Weekly Economic Update - 19 March 2021

Weekly Economic Update 19 March 2021#

Regional Activity Indicators released#

The Regional Activity Indices (RAIs) were updated this week for the February month. Each RAI is a composite index that summarises six monthly indicators of economic activity in that region. Activity growth in the northernmost regions of the North Island (Northland, Auckland and Waikato) fell marginally in February as a result of the temporary escalations of alert levels in Auckland. This was reflected by falls in consumer card spending, light traffic, and electricity grid demand (Figure 1).

Figure 1: Auckland Activity Index

Sources: The Treasury/Various

For the rest of New Zealand, activity remained little-changed from January. Activity growth in lower South Island regions remains below average, although a number of these regions did display a modest uptick in February (Canterbury, West Coast, Otago and Southland).

Dairy prices retreat from recent highs#

The GlobalDairyTrade (GDT) auction price index GDT result from Tuesday night ended a run of 8 consecutive increases, falling 3.8% following a 15.0% rise in the prior auction (Figure 2). While whole milk powder prices dipped 6.2% (following the 21.0% increase at the last auction), they remain at levels not seen since 2014. Butter prices also retreated somewhat (down 2.8%) but remain at 3-year highs. These elevated price levels support a continued positive outlook for farmgate milk prices for the 2020/21 season.

Figure 2: GlobalDairyTrade auction prices

Sources: GlobalDairyTrade/Haver

Current account deficit widens…#

New Zealand’s seasonally adjusted quarterly current account deficit widened by $1.6 billion in the December 2020 quarter, to reach $2.1 billion. The increase in the deficit was driven by deteriorations in both the goods and services balances, as goods imports recovered further and services exports fell.

Figure 3: Current account deficit (annual)

Source: Stats NZ

…and GDP was weaker than expected#

December quarter GDP was weaker than expected, falling 1.0% (following a record increase of 13.9% in the September quarter). This quarter’s result was driven by a decline in activity in construction services and non-residential building as well as a 5.0% fall in the tourism-impacted retail, accommodation and restaurants industries. On an annual basis, GDP for the year ended December 2020 fell 2.9%.

Mixed data in the US…#

Retail sales and industrial production in the United States declined by 3.3% and 2.2%, respectively, in February compared to the previous month, partly due to severe weather conditions impacting central states (Figure 4). The decline should therefore be reversed in March, supported by the recently disbursed US$1,400 stimulus cheques to households. The January surge in retail sales was revised up by 2.3 percentage points to 7.6%. However, there are concerns that global supply chain issues will delay the ability of manufacturing production to catch up with goods demand.

Figure 4: Industrial production and retail sales

Source: Haver

…and China…#

Retail sales in China declined by an average 0.4% in January and February compared to December, when growth was 1.3%. This reflects travel restrictions that were put in place during the Lunar New Year period to combat an outbreak of COVID-19 in the community. Monthly growth in industrial production held steady at 0.7%, supported by stronger external demand and an increase in hours worked. Investment spending grew by 2.5% on a monthly basis, the strongest growth since August last year, driven by a further increase in property investment.

…as US Fed raises growth forecasts#

At its Federal Open Market Committee (FOMC) meeting, the US Federal Reserve (Fed) left its policy settings unchanged and upgraded its forecasts for economic activity. Real GDP is forecast to expand by 6.5% in 2021, up from 4.2% in the December projections, while the unemployment rate forecast was downgraded from 5.0% to 4.5%. Higher economic growth is expected to have only a transitory effect on inflation, rising to 2.4% by the end of 2021 before falling to just above 2.0% in 2022-23. While most FOMC participants still see the policy interest rate on hold until the end of 2023, four expect tightening to commence in 2022 (up from one in December), and seven expect an increase in 2023 (up from five).

Australian unemployment declines further#

The unemployment rate declined from 6.3% in January to 5.8% in February, while the participation rate remained steady at 66.1% (Figure 5). Monthly hours worked increased by 6.2% following the sharp fall in January, while the underemployment rate increased from 8.1% to 8.5%, compared to a pre-pandemic rate of 8.2%.

Figure 5: Australia labour market

Source: Haver

Vaccine concerns in Europe#

A number of European countries suspended the AstraZeneca vaccine rollout this week owing to concerns about possible serious side effects. After the European Medicines Agency deemed it "safe and effective", Germany, France, Spain, and Italy will recommence its use. The pausing of the vaccine rollout has added to existing concerns about Europe’s progress lagging other developed markets owing to supply shortages. COVID-19 infection rates have been rising recently in Italy and Germany, with the former going into another lockdown from 15 March to 6 April.

High-Frequency Indicators (Domestic)#

Traffic Movement#

Source: Waka Kotahi NZ Transport Agency

Freight Movement#

Source: Waka Kotahi NZ Transport Agency

Spending by Region#

Source: Marketview data via MBIE

Spending by Industry#

Source: Marketview data via MBIE

Jobseeker (JS) and Income Support Recipients#

Source: MSD

People Movements at Selected Locations#

Source: Google

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

Regional Activity Charts, part 1#

Northland#

Auckland#

Waikato#

Bay of Plenty#

Regional Activity Charts, part 2#

Gisborne#

Hawke's Bay#

Taranaki#

Manawatū-Whanganui#

Wellington#

Regional Activity Charts, part 3#

Tasman/Nelson/Marlborough#

Canterbury#

West Coast#

Otago#

Southland#

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