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Weekly Economic Update - 29 January 2021#
New COVID cases in the community#
Three cases of COVID-19 have been recorded in the community over the past week, all of which originated from the same MIQ facility in Auckland. Contact tracing is well underway, and the MIQ facility has been placed into temporary lockdown.
Business sentiment continues to improve…#
The December quarter release of the NZIER's Quarterly Survey of Business Opinion (QSBO) showed improving business sentiment. A net 9% of firms now think their trading activity for the next 3 months will be higher, compared to 0.5% in the September quarter (Figure 1).
Figure 1: GDP and domestic trading activity
Sources: NZIER, Stats NZ
A net 16% of firms were pessimistic about the general business situation in the December quarter, up from a net 38% in the September quarter and 58% in the June quarter. Conditions remain challenging for some firms, particularly those in the services and retail areas. Capacity and cost pressures remain key concerns and firms are cautious about hiring, with a net 8% of firms reducing their headcount in the December quarter. Investment intentions are now positive but remain weak.
…and inflation exceeds expectations#
High demand for domestic tourism, vehicles, furniture and electronics, combined with supply chain disruptions and less discounting activity provided a stronger inflationary environment than expected in the December quarter. Consumer prices rose 0.5% in the quarter, driven by broad-based increases in both the tradables and non-tradables groups. Annual inflation remained at 1.4%, unchanged from the September quarter.
The stronger-than-expected outturn for inflation adds to recent data suggesting the economy was more resilient than expected in our HYEFU forecast. However, we expect inflationary pressures to ease as the effects of the pandemic and response continue to flow through the economy, although supply-side disruptions may provide support for prices in the near term.
Manufacturing activity contracts in December…#
The BNZ-BusinessNZ Performance of Manufacturing Index (PMI) returned to contractionary territory in December, down 6 points to 48.7. Production fell by 3.5 points but remained in expansionary territory while new orders, employment, finished goods and deliveries all fell into contractionary territory.
…but services activity improves#
The Performance of Services Index (PSI) picked up, rising 2.5 points to 49.2, but remains contractionary. Sales rose 5.6 points to 51.3 and employment rose to 51.7, its best reading since January 2020, but new orders fell by 1.3 points and supplier deliveries remained weak at 39.5, possibly driven by supply-side problems. The positive services result helped drive the GDP Weighted Combined Index (PCI) up 1.5 points to 49.2.
Fall in dairy exports#
In the month of December, New Zealand's exports fell 2.5% (in seasonally adjusted terms), with exports of dairy products 19% lower than the same month last year, driven by a drop in sales to China. This is the first time in six years that there has been a fall in dairy product exports to China in a December month. The drop in dairy exports was partly offset by a rise in exports of respiratory equipment. Total imports rose 7.9% in December, led by imports of passenger cars. The resulting seasonally adjusted monthly trade balance in December 2020 was a deficit of $107 million.
Vaccine success improves world outlook#
The global economic contraction over 2020 was revised down by 0.9 percentage points (ppts) to 3.5% in the IMF's January World Economic Outlook. Growth in 2021 was upgraded by 0.3 ppts to 5.5%, driven by hopes of a vaccine-powered recovery and increased fiscal stimulus in the US and Japan. Renewed waves of infection and new virus strains pose significant risks, however.
UK PMI plunges in January…#
The UK Purchasing Managers' Index (PMI) came in much weaker than expected, reflecting the impact of January's renewed lockdown. The manufacturing PMI fell 4.6 points (pts) to 52.9, while the services PMI plummeted nearly 11 pts to 38.8. This dragged the composite index down to 40.6, the weakest level since May 2020 (Figure 2).
Figure 2: Composite Output PMI
Source: IHS Markit/Haver Analytics
…and unemployment rises#
The UK unemployment rate in the three months to November 2020 was 5.0%, an increase of 0.6 ppts from the previous quarter. Employment fell by 0.3% in the quarter, though hours worked increased by 10.0%. This result was better than the Bank of England's November forecast, though further near-term weakness is expected.
European PMI eases as France lockdown looms#
The euro area PMI fell to 47.5 in January (Figure 2), with the services index dropping 2.3 pts while the manufacturing index fell by 0.8 pts. Meanwhile, vaccine supply delays are casting doubt on whether the European Union's target of vaccinating 70% of adults by the summer will be achieved, and calls are growing for a third lockdown in France as COVID-19 cases surge and hospitalisations rise.
US PMI and consumer confidence rise…#
PMI results out of the US were more positive, with the manufacturing index rising to a record 59.1 and the services index rising to 0.9 pts shy of its record level in November. The composite index reached 58.0, 0.6 pts off the record level reached in November. Consumer confidence rose 2.2 pts after dropping nearly 15 pts from October to December (Figure 3). The details were mixed, with the expectations index at its highest since October, but the present situation index at its lowest since May.
Figure 3: US consumer confidence
Source: The Conference Board/Haver Analytics
…and the Fed holds policy unchanged#
The US Federal Reserve Board agreed to hold its policy rate unchanged, citing softening business activity amid the virus resurgence. Democrats announced plans to bring a stimulus vote as early as next week, which would likely include the stimulus payments and increased jobless benefits in President Biden's $1.9 trillion proposal.
Australian inflation, business conditions rise#
The Australian Consumer Price Index rose 0.9% in the December quarter, exceeding expectations and taking annual inflation up to 0.9%. The December NAB Business Survey saw business confidence fall 9 pts, likely influenced by the Sydney COVID-19 outbreak. The business conditions index was more positive, rising 7 pts to its highest level since 2018. Employment conditions rose sharply, entering positive territory for the first time since the start of the pandemic, underscoring December's 0.4% rise in employment and 0.2 ppt fall in the unemployment rate to 6.6%.
|Date||Key upcoming NZ data||Previous|
|3 Feb||Unemployment rate||5.3%|
|4 Feb||ANZ Business Outlook||+9.4% (net)|
High-Frequency Indicators (Domestic)#
Source: Waka Kotahi NZ Transport Agency
Source: Waka Kotahi NZ Transport Agency
Source: Electricity Authority
Source: Marketview data via MBIE
Jobseeker (JS) and Income Support Recipients#
People Movements at Selected Locations#
High-Frequency Indicators (Global)#
Trade Weighted Index#
US Activity and Equities#
Sources: Federal Reserve Bank of New York, Haver
Sources: World Health Organisation/Haver
World Commodity Prices#
|Real Production GDP1||qpc||0.7||0.1||-1.2||-11.0||14.0||...|
|Current account balance (annual)||%GDP||-3.7||-3.3||-2.8||-1.8||-0.8||...|
|Merchandise terms of trade||apc||0.9||7.1||5.4||6.3||-0.4||...|
|LCI salary & wage rates - total2||apc||2.5||2.6||2.5||2.1||1.8||...|
|QES average hourly earnings - total2||apc||4.2||3.6||3.6||3.0||3.6||...|
|Core retail sales volume||apc||5.4||3.3||4.0||-11.7||7.7||...|
|Total retail sales volume||apc||4.5||3.3||2.3||-14.2||8.3||...|
|WMM - consumer confidence3||Index||103.1||109.9||104.2||97.2||95.1||106.0|
|QSBO - general business situation1,4||net%||-37.1||-30.8||-67.9||-57.6||-37.6||-16.3|
|QSBO - own activity outlook1,4||net%||-0.6||2.9||-12.9||-24.1||0.5||9.4|
|Monthly Indicators||Jul 20||Aug 20||Sep 20||Oct 20||Nov 20||Dec 20|
|Merchandise trade balance (12 month total)||NZ$m||26||1,369||1,655||2,223||3,300||2,937|
|Dwelling consents - residential||apc||-0.8||-3.3||7.7||7.2||19.9||...|
|House sales - dwellings||apc||29.1||27.7||41.9||30.0||33.0||36.6|
|REINZ - house price index||apc||9.2||9.6||10.8||13.2||15.0||17.1|
|Estimated net migration (12 month total)||people||82,811||76,823||69,556||60,445||52,373||...|
|ANZ NZ commodity price index||apc||0.2||-3.9||-6.5||-5.6||-10.9||-5.9|
|ANZ world commodity price index||apc||-1.5||-2.8||-3.1||-2.3||-5.5||-0.4|
|ANZBO - business confidence||net%||-31.8||-41.8||-28.5||-15.7||-6.9||9.4|
|ANZBO - activity outlook||net%||-8.9||-17.5||-5.4||4.7||9.1||21.7|
|ANZ-Roy Morgan - consumer confidence||net%||104.3||100.2||100.0||108.7||106.9||112.0|
|Weekly Benefit Numbers||18 Dec||25 Dec||1 Jan||8 Jan||15 Jan||22 Jan|
|Health Condition and Disability||number||76,909||77,443||77,620||77,764||77,917||77,958|
|COVID-19 Income Relief Payment||number||3,655||2,648||2,096||2,069||1,390||662|
|NZ exchange and interest rates5|
|Trade weighted index (TWI)||index||74.1||74.6||74.8||74.7||74.7||75.1|
|Official cash rate (OCR)||%||0.25||0.25||0.25||0.25||0.25||0.25|
|90 day bank bill rate||%||0.29||0.28||0.29||0.29||0.29||0.29|
|10 year govt bond rate||%||1.01||1.04||1.07||1.06||1.03||1.03|
|VIX volatility index||index||21.6||21.3||21.9||23.2||23.0||37.2|
|AU all ords||index||7,051||7,107||7,079||7,111||...||7,060|
|US interest rates|
|3 month OIS||%||0.09||0.08||0.08||0.08||0.08||...|
|3 month Libor||%||0.22||0.22||0.22||0.21||0.22||...|
|10 year govt bond rate||%||1.10||1.12||1.10||1.05||1.05||1.04|
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||2020Q2||Jul 20||Aug 20||Sep 20||2020Q3||Oct 20||Nov 20||Dec 20||2020Q4||Jan 21|
|Retail sales value||apc||2.7||3.6||6.1||5.4||3.7||2.9||...|
|Retail sales value||apc||-2.9||-1.9||-8.7||6.4||0.6||...||...|
|Retail sales volume||apc||0.2||4.4||2.6||4.2||-2.9||...||...|
|Retail sales volume||apc||1.1||2.7||4.5||5.9||2.1||2.9||...|
|Retail sales value||apc||12.8||5.4||6.6||7.7||12.1||...||...|
(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