Weekly Economic Update - 25 June 2021

Weekly Economic Update 25 June 2021#

Travel bubble with NSW paused…#

The quarantine-free travel arrangement between New Zealand and New South Wales was paused for 72 hours initially from midnight on Tuesday night as the COVID cluster in New South Wales continues to grow. At the same time, quarantine free travel with Victoria resumed.

…and COVID-19-positive case visits Wellington#

It was announced on Wednesday that a person travelled from Sydney to Wellington over the weekend and visited a number of locations in Wellington while likely infectious.

As a precaution, the Wellington region moved to Alert Level 2 from 6pm on Wednesday to midnight on Sunday night. The rest of the country remains at Alert Level 1. At the time of writing, contact tracing has not identified any instances of community transmission amongst the visitor's close contacts.

Based on the observed economic impacts from prior lockdowns, Treasury modelling suggests that likely economic impact of the Wellington region being in Alert Level 2 while the rest of the country remains at Alert Level 1 is something in the region of $10 million per week lost GDP (around 0.2% of GDP). The shorter the amount of time spent at this higher alert level, the more likely it is that some of this lost activity will be able to be made up.

Consumer confidence improves…#

Consumer confidence rose 1.9 points to 107.1 in the June release of the Westpac McDermott Miller Consumer Confidence Survey, though it remains slightly below its long run average (Figure 1).

Figure 1: Consumer confidence

Source: Westpac McDermott Miller

Increasing numbers of households have reported that their financial position has improved over the past 12 months, supported by a strengthening labour market and continued gains in house prices. This has been reflected in a significant rise in household spending, particularly on dining out and other entertainment activities. However, willingness to spend on durables was weaker, possibly reflecting concerns about the availability of many goods as a result of global supply chain disruptions.

…although results differ across age groups#

Households are more optimistic about the outlook for the economy and their own financial situation over the coming year. However, there are still some big differences across age groups. Confidence among those aged 30 and over is now back around average levels, while those aged 18 to 29 are still very pessimistic, likely owing to ongoing travel restrictions and the long-term trajectory of the economy, particularly the housing market.

Regional activity indicators continue trend#

All fourteen regions monitored in the Regional Activity Indices (RAIs) showed very large upward spikes relative to May last year when the country was in national lockdown (see page 4 and 5).

This continues the pattern of the last three months in showing abnormally high levels of activity growth compared to the same month the previous year and is a symptom of the annual percentage change methodology used to construct the indices. It does however underline the strength and breadth of the recovery a year on.

We expect the RAIs to return to more meaningful levels from next month's update onwards, as the effect of lockdown on the calculation passes.

Growth in advanced economies is stabilising…#

Purchasing Managers' Indices for June show that while the economic recovery remains strong in most advanced economies, the pace of growth appears to be stabilising (Figure 2). In the US, where the composite output index had risen well above the historical average, a fall was recorded in June as the services component eased from its record high in May.

The UK index eased slightly but remained firmly expansionary, indicating an ongoing recovery. A rise in COVID-19 cases driven by the highly infectious delta variant of the virus has delayed the anticipated easing in gathering restrictions to 19 July, so growth may remain flat next month.

The composite index for the euro area rose to a record high in June, led by the services component, indicating an accelerating economic recovery as restrictions are eased. Annual consumer price inflation in the euro area picked up to 2.0% in May, the highest rate since 2018, and consumer confidence lifted to a 3-year high. Rising input and output prices in the PMI survey suggest that inflation is set to continue rising in June.

Figure 2: Composite output PMI

Source: Haver

Australia's composite output PMI eased again in June but remained firmly expansionary, suggesting that strong growth will continue in the June quarter but may begin to slow as the economy nears a full recovery (Figure 2). In Japan, the PMI index fell further into contractionary territory, as state of emergency measures remained in place throughout most of June. Japan's consumer price inflation remained subdued in May, picking up slightly to -0.1% but staying below zero for the eighth consecutive month.

…as retail spending remains strong…#

Retail spending values rose 0.1% in Australia in May, remaining well above their pre-pandemic trend (Figure 3). Spending eased slightly in the UK, down 0.8% in May, but values were still in line with pre-pandemic trend growth.

Figure 3: Retail sales values

Source: Haver

…and central bankers reassure markets#

US Federal Reserve Chair Jerome Powell reiterated his view that the sharp rise in consumer price inflation will prove transitory, noting that a return to the double-digit inflation seen in the 1970s is “very, very unlikely”. His comments were followed by a recovery in stock markets, which dipped on Friday after some members of the Federal Open Market Committee indicated the possibility of interest rate hikes as early as next year. Meanwhile, European Central Bank President Christine Lagarde played down the likelihood of US inflation spreading, stating that any spill-over effect on euro area inflation is expected to be moderate.

Vaccine shortages threaten global recovery#

While the US and UK have fully vaccinated close to half of their populations, poorer countries are lagging far behind, and vaccine shortages are set to make the disparity even worse. According to the World Health Organisation, of the 80 low-income countries receiving vaccines through its Covax programme, at least half have run out of vaccine supplies. These countries will be vulnerable to ongoing outbreaks of COVID-19, so it is likely that the economic recovery in the developing world will be much slower than in advanced economies.

High-Frequency Indicators#

Traffic and Freight Movement#

Source: Waka Kotahi NZ Transport Agency

Border Crossings#

Source: Stats NZ

People Movements at Selected Locations#

Source: Google

Jobseeker (JS) and Income Support Recipients#

Source: MSD

COVID-19 Cases#

Source: World Health Organisation/Haver

World Commodity Prices#

Source: ASB

Regional Activity Indicators#

Northland#

Auckland#

Waikato#

Bay of Plenty#

Gisborne#

Hawke's Bay#

Taranaki#

Manawatu-Whanganui#

Wellington#

Tasman/Nelson/Marlborough#

Canterbury#

West Coast#

Otago#

Southland#

All component indicators (displayed in light grey) have been standardised in the same way as the RAI itself (ie, to have mean = 0 and standard deviation = 1). This allows for all the series to be presented on the same scale – making the co-movements of interest more readily apparent. These standardised inputs can be viewed and downloaded alongside the RAIs on the Stats NZ COVID-19 data portal.

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