Weekly Economic Update 24 September 2021
Economic data continues to point to activity and confidence holding up relatively well compared to the period under higher alert levels (AL) in 2020. While the recovery in spending dropped back slightly last week, the move to AL 3 in Auckland will support activity ahead. Resilient consumer confidence is expected to support demand as restrictions ease, and sustained inflationary pressures raises expectations of tighter monetary policy. The possible default of Chinese property developer Evergrande remains a concern for financial markets. A default could lead to a slowdown in the Chinese economy and weaken demand for our exports.
Recovery in card spending has abated…
Card spending in most regions outside Auckland in the week ended 20 September fell after an initial bounce back but remains above the levels seen in 2019. Total spending is expected to continue rising with Auckland moving to AL 3. However, in-person spending has not recovered to the same extent as the 2020 post-lockdown period, which likely reflects AL 3 in Auckland and a rise in online shopping
…but consumer confidence has been resilient
Consumer confidence in the Westpac McDermott Miller Consumer Confidence Survey fell 4.4 points in September to 102.7, much less than the fall seen during the 2020 lockdown (Figure 1). Supply chain disruptions and rising shipping costs appear to be weighing on consumers’ spending by limiting the availability of goods and raising prices. While Auckland moving down alert levels is positive, global shipping is likely to remain disrupted for some time.
Figure 1: Consumer confidence
Source: Westpac, ANZ
Monetary policy is expected to tighten…
The evidence is becoming ever clearer that the economy was in a robust state prior to the Delta outbreak and has been resilient to the lockdown. There is also increasing evidence of inflationary pressure. Consequently, it seems increasingly likely that the Reserve Bank will lift interest rates. The Reserve Bank itself this week indicated that monetary policy would be tightened in small increments, rather than sharply.
The RBNZ has also announced that loan to value ratio (LVR) restrictions will tighten from 1 November 2021, limiting the amount of lending banks can do above an LVR of 80 percent to 10 percent of all new loans to owner-occupiers.
…after activity falls in the September quarter…
Both the BNZ-BusinessNZ Performance of Manufacturing and Services Indexes fell in August as a result of the nationwide lockdown and are now in contractionary territory. The Combined Index (PCI) fell to 36.2, a 20.8-point drop from July, suggesting a sharp decline in GDP in the September quarter (Figure 2).
Figure 2: GDP and PCI
Sources: Stats NZ, BNZ-BusinessNZ
…and Fonterra confirms pay-out for the year
Fonterra confirmed a $7.74 per kgMS payout (including dividend) for the 2020/21 year. While dairy prices have been easing since their peak in March 2021, they remain at elevated levels which will be providing a boost to export values and the New Zealand dairy industry. Dairy prices rose 1.0% at the latest GlobalDairyTrade auction.
Concerns about Evergrande cause jitters…
It has been a volatile week in global financial markets, mostly due to concerns about the possible default of Chinese property developer Evergrande. Since there are no derivative instruments built on Evergrande’s debt of more than NZD400 billion, analysts expect contagion to the rest of the financial system to be limited. However, a negative impact on the property sector is likely to result in a slowdown in China’s economic growth, which could affect the demand for New Zealand’s exports. After deteriorating early in the week, risk appetite improved on Thursday as Evergrande announced that it had reached an agreement on an upcoming coupon payment. Further helping sentiment was a large liquidity injection by the Chinese central bank. However, there is still a lot of uncertainty about Evergrande’s restructure, to what extent the Chinese government will intervene, and the degree of wider contagion in the region.
…as activity growth slackens
Purchasing Managers’ Index (PMI) data released for September confirmed that the global economic recovery is slowing. The PMI for the euro area, whilst still firmly in expansionary territory (above 50), declined to a five-month low (Figure 3). The measure for input prices reached a 21-year high, reflecting ongoing supply chain disruptions and shortages of materials. In the US, the composite PMI also declined, reaching a 12-month low. In addition to supply chain disruption, the decline reflected a slowdown in demand related to the Delta outbreak, while labour shortages continue to be an issue. Overall, with demand continuing to outpace supply, price pressures remain elevated.
Figure 3: Composite PMIs in selected countries
…and global central banks hold steady
Inflation rates are rising around the world and economic growth has slowed in many jurisdictions due to the Delta outbreak. However, the Federal Reserve expects US GDP growth will remain robust through 2022-24. Nevertheless, most central banks are only inching slowly toward tighter monetary policy. This week Norway became only the second developed economy after South Korea to raise its policy interest rate.
This week’s United States Federal Open Market Committee (FOMC) statement was largely in line with market expectations, noting that if progress towards its policy goals continues as expected, asset purchase tapering ‘may soon be warranted’. This means the FOMC will continue purchasing government bonds, but at a slower pace, with the slowdown expected to commence in either November or December. Some FOMC members brought forward their expectations of interest rate hikes, with nine out of 18 now judging an increase in 2022 to be appropriate, up from seven previously.
Shadow interest rates, which indicate the overall stance of monetary policy including asset purchases, remain firmly in negative territory, but have started increasing, notably in New Zealand (Figure 4).
Figure 4: Shadow interest rates
|Date||Key upcoming NZ data||Previous|
|30 September||Building consents||+2.1% (mpc)|
|1 October||ANZ Consumer Confidence||109.6 (index)|
Traffic and Freight Movement
Source: Waka Kotahi NZ Transport Agency
Source: Marketview data via MBIE
People Movements at Selected Locations
Jobseeker (JS) and Income Support Recipients
COVID-19 Cases Per Million People
Source: World Health Organisation/Haver
World Commodity Prices
-  Additional high frequency indicators are available on the Stats NZ COVID-19 data portal: https://www.stats.govt.nz/experimental/covid-19-data-portal
|Real Production GDP1||qpc||-1.4||-9.9||13.9||-1.0||1.4||2.8|
|Current account balance (annual)||%GDP||-2.4||-1.5||-0.7||-0.8||-2.5||-3.3|
|Merchandise terms of trade||apc||5.4||6.3||-0.3||-1.6||-0.9||0.0|
|LCI salary & wage rates - total2||apc||2.5||2.1||1.8||1.6||1.6||2.1|
|QES average hourly earnings - total2||apc||3.7||3.0||4.2||4.3||4.0||4.0|
|Core retail sales volume||apc||4.0||-11.7||7.6||4.4||5.4||30.2|
|Total retail sales volume||apc||2.3||-14.2||8.1||4.7||6.6||33.3|
|WMM - consumer confidence3||Index||104.2||97.2||95.1||106.0||105.2||107.1|
|QSBO - general business situation1,4||net%||-66.2||-60.1||-38.2||-14.9||-7.9||10.1|
|QSBO - own activity outlook1,4||net%||-12.3||-24.6||-0.6||10.6||7.8||27.6|
|Monthly Indicators||Apr 21||May 21||Jun 21||Jul 21||Aug 21||Sep 21|
|Merchandise trade balance (12 month total)||NZ$m||748||-49||-277||-1,099||-2,944||...|
|Dwelling consents - residential||apc||83.7||17.3||24.0||24.2||...||...|
|House sales - dwellings||apc||439.7||86.4||10.4||-9.7||-26.5||...|
|REINZ - house price index||apc||26.8||29.7||30.0||30.6||31.2||...|
|Estimated net migration (12 month total)||people||3,112||3,209||3,344||4,407||...||...|
|ANZ NZ commodity price index||apc||6.8||7.9||17.5||16.9||15.4||...|
|ANZ world commodity price index||apc||24.2||25.2||28.0||22.2||21.5||...|
|ANZBO - business confidence||net%||-2.0||1.8||-0.6||-3.8||-14.2||-6.8|
|ANZBO - activity outlook||net%||22.2||27.1||31.6||26.3||19.2||18.2|
|ANZ-Roy Morgan - consumer confidence||net%||115.4||114.0||114.1||113.1||109.6||...|
|Weekly Benefit Numbers||13 Aug||20 Aug||27 Aug||3 Sep||10 Sep||17 Sep|
|Health Condition and Disability||number||80,106||80,634||81,180||81,528||81,579||81,588|
|COVID-19 Income Relief Payment||number||...||...||...||...||...||...|
|NZ exchange and interest rates5|
|Trade weighted index (TWI)||index||75.5||75.2||74.9||74.8||74.9||74.7|
|Official cash rate (OCR)||%||0.25||0.25||0.25||0.25||0.25||0.25|
|90 day bank bill rate||%||0.61||0.68||0.67||0.61||0.62||0.61|
|10 year govt bond rate||%||1.80||1.86||1.87||1.84||1.86||1.86|
|VIX volatility index||index||18.7||20.8||25.7||24.4||20.9||18.6|
|AU all ords||index||7,760||7,703||7,538||7,563||7,594||7,681|
|US interest rates|
|3 month OIS||%||0.08||0.08||0.08||0.08||0.08||...|
|3 month Libor||%||0.12||0.12||0.13||0.13||0.13||...|
|10 year govt bond rate||%||1.34||1.37||1.31||1.33||1.32||1.41|
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
|Country||Indicator||Feb 21||Mar 21||2021Q1||Apr 21||May 21||Jun 21||2021Q2||Jul 21||Aug 21||Sep 21|
|Retail sales value||apc||6.5||29.7||53.4||28.0||18.9||15.1||15.1||...|
|Retail sales value||apc||3.7||5.2||11.9||8.3||0.1||2.4||...||...|
|Retail sales volume||apc||-1.3||13.8||23.6||8.6||5.4||3.1||...||...|
|Retail sales volume||apc||-3.6||6.9||42.1||24.1||9.1||2.4||...||...|
|Retail sales value||apc||5.2||3.9||23.8||7.1||2.9||-2.9||...||...|
(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