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Weekly economic update

Weekly Economic Update - 29 October 2021

Weekly Economic Update - 29 October 2021

Overall activity is broadly back to September 2020 levels across most parts of the country, with regional activity indicators rebounding and business activity indicators holding up across the country. Our export sector has been resilient despite ongoing global supply chain disruptions and heightened alert level restrictions in parts of the country. However, cost pressures remain intense and the proportion of businesses intending to raise prices continues to rise.

Economic activity bounces back…

Overall economic activity in New Zealand for the month of September returned to broadly the same level as a year ago according to the New Zealand Activity Index (NZAC) (Figure 1), highlighting the recovery seen in the high-frequency indicators for the regions that moved to Alert Level 2 last month. The resilience in demand seen to date could indicate that the fall in September 2021 quarter GDP is shallower than what may have been expected initially, although there is still more data to come.

Figure 1: NZAC and real GDP

Figure 1: NZAC and real GDP

Source: Stats NZ

…and business expectations remain resilient

Business’ expectations of their own activity eased slightly in the final October read of the ANZ Business Outlook but a net 21.7% of businesses continue to expect conditions to improve ahead. However, headline confidence continues to slip. Cost pressures continue to mount with a net 87.2% expecting higher prices, leading to a significant rise in pricing intentions and suggests inflationary pressures will remain elevated in the quarters ahead (Figure 2).

Figure 2: Pricing intentions and inflation expectations

Figure 2: Pricing intentions and inflation expectations

Source: ANZ

Record high export and import values…

Despite higher alert level restrictions and ongoing supply chain disruptions, New Zealand’s goods trade has been robust. Annual values of both imports and exports reached record highs in the year ended September 2021 and led to a $4.1 billion annual goods trade deficit. Strong growth in import values partly reflects rising freight costs and elevated global inflation, though demand also appears strong as confidence in the economic recovery remains.

The fact that a roughly normal volume of goods is crossing New Zealand wharfs seems counterintuitive given how much we are hearing about supply-chain disruptions and difficulty securing shipping space. Our conclusion is that supply chains have been stretched more by a surge in demand for goods than by a reduction in supply of shipping space. As global demand for goods has risen, shipping companies have captured some of the resulting price increases, but many product producers have also benefitted from higher prices.

…leading to a higher milk price forecast

Fonterra Co-operative Group increased and narrowed their forecast Farmgate Milk Price range to $7.90-$8.90 per kg/MS. As a result the mid-point price lifts to $8.40 from $8, equalling the highest price ever paid in 2014. Global milk production is forecast to remain below average levels, driven by a slowdown in US production owing to the increased cost of feed.

Internationally, inflation expectations continued to rise, as supply disruptions drove up prices and constrained activity, bringing forward expectations of central bank rate hikes. Slower growth in the US and South Korea provided further confirmation of slower global growth momentum.

Inflation pressures rise in Australia…

In Australia, the headline consumers price index rose 0.8% in the September quarter, driven by rises in fuel and home-building costs, and the annual rate dipped to 3.0% (Figure 3). These results were in line with analysts’ expectations but the trimmed mean, which strips out large price movements, was surprisingly strong, at 0.7% in the quarter. This lifted the annual trimmed rate to 2.1%, the first time since 2015 it has been inside the Reserve Bank of Australia’s (RBA) 2-3% inflation target. Analysts noted this surprise reflects “transitory” COVID-19-related supply bottlenecks, but also that demand pressures are likely to increase as the economy reopens. Short-term interest rates rose as financial markets responded to the risk that the conditions for a rate rise by the RBA will be met earlier than the current guidance of 2024. 

Figure 3: Australian inflation

Figure 3: Australian inflation

Source: Haver

…and in other advanced economies…

The Bank of Canada surprised analysts with its decision to immediately end its quantitative easing programme and its guidance that a higher policy rate may be appropriate by the middle of 2022.  Driving the Bank’s decisions were upward revisions to inflation, which it expects to average 3.4% over 2022, up from 2.5% previously.

The European Central Bank (ECB) made no changes to its policy settings this week or to its transitory inflation view, however ongoing supply disruptions mean inflation will take longer to fall back below the 2% target. ECB President Lagarde confirmed that the ECB does not expect to raise rates in 2022, but there was nothing in the ECB’s report to shift financial market expectations of a rate hike next year.

…as global growth slows…

In South Korea, real GDP rose 0.3% in the September quarter, down from 0.8% in the previous quarter, as a fourth wave of strict COVID-19 restrictions curtailed activity.

In the US, GDP growth slowed to 0.5% in the September quarter from 1.6% in the previous quarter, reflecting supply side constraints, the delta variant outbreak and less fiscal support.

Positive data over the past week point to a pickup in US growth in the final quarter but also reinforce financial market expectations that the Fed policy rate will rise by 0.5% before the end of 2022. The Conference Board measure of consumer confidence rose, defying expectations of a fall, as did year-ahead inflation expectations, up 0.5% to 7.0%, a 13-year high. Initial “flash” readings for October’s IHS Markit purchasing managers’ indexes (PMI) showed the higher composite PMI was driven by a resurgent services sector as COVID-19 infections fell. However, supply bottlenecks and labour shortages weighed on manufacturing production and drove prices higher.    

PMI releases for the euro area and the UK echoed the news of constrained inputs and rising output prices, further challenging central bank views of transitory price pressure. 

…and the UK fiscal outlook improves

In the UK Budget, the Chancellor announced a further GBP135 billion in spending across the next four years. This came as the Office of Budget Responsibility materially upgraded its economic forecasts, mostly reflecting lower estimates of economic scarring, and its revenue forecasts. The forecasts showed a marked reduction in fiscal deficits and expected borrowing. Analysts saw the positive outlook as reaffirming market expectations that the Bank of England will hike Bank Rate next week.      

Date Key upcoming NZ data Previous
2 Nov Building consents +3.8% (mpc)
4 Nov Labour market statistics 4.0% unemployment

High-Frequency Indicators[1]

Traffic and Freight Movement

Traffic and Freight Movement

Source: Waka Kotahi NZ Transport Agency

Card Spending

Card Spending

Source: Marketview data via MBIE

People Movements at Selected Locations

People Movements at Selected Locations

Source: Google

Jobseeker (JS) and Income Support Recipients

Jobseeker (JS) and Income Support Recipients

Source: MSD

COVID-19 Cases Per Million People

COVID-19 Cases Per Million People

Source: World Health Organisation/Haver

World Commodity Prices

World Commodity Prices

Source: ASB

Notes

  1. [1] Additional high frequency indicators are available on the Stats NZ COVID-19 data portal: https://www.stats.govt.nz/experimental/covid-19-data-portal

Tables

Quarterly Indicators   2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3
Real Production GDP1 qpc -9.9 13.9 -1.0 1.4 2.8 ...
  aapc -1.3 -1.6 -2.1 -1.4 5.1 ...
Current account balance (annual) %GDP -1.5 -0.7 -0.8 -2.5 -3.3 ...
Merchandise terms of trade apc 6.3 -0.3 -1.6 -0.9 0.0 ...
CPI  inflation qpc -0.5 0.7 0.5 0.8 1.3 2.2
  apc 1.5 1.4 1.4 1.5 3.3 4.9
Employment (HLFS)1 qpc -0.4 -0.6 0.7 0.6 1.1 ...
Unemployment rate1 % 4.1 5.3 4.8 4.6 4.0 ...
Participation rate1 % 69.9 70.1 70.2 70.4 70.5 ...
LCI salary & wage rates - total2 apc 2.1 1.8 1.6 1.6 2.1 ...
QES average hourly earnings - total2 apc 3.0 4.2 4.3 4.0 4.0 ...
Core retail sales volume apc -11.7 7.6 4.4 5.4 30.2 ...
Total retail sales volume apc -14.2 8.1 4.7 6.6 33.3 ...
WMM - consumer confidence3 Index 97.2 95.1 106.0 105.2 107.1 102.7
QSBO - general business situation1,4 net% -61.2 -36.7 -15.0 -8.2 8.6 -8.4
QSBO - own activity outlook1,4 net% -25.0 1.1 9.5 7.5 27.1 9.3
Monthly Indicators   May 21 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21
Merchandise trade balance (12 month total) NZ$m -49.1 -276.6 -1096.8 -2936.9 -4084.8 ...
Dwelling consents - residential apc 17.3 24.0 24.2 42.3 ... ...
House sales - dwellings apc 86.4 10.4 -9.1 -23.8 -37.9 ...
REINZ - house price index apc 29.7 29.9 30.4 31.0 30.5 ...
Estimated net migration (12 month total) people 2,441.0 2,321.0 3,342.0 2,382.0 ... ...
ANZ NZ commodity price index apc 7.9 17.6 16.9 15.4 17.4 ...
ANZ world commodity price index apc 25.2 28.0 22.2 21.5 23.6 ...
ANZBO - business confidence net% 1.8 -0.6 -3.8 -14.2 -7.2 -13.4
ANZBO - activity outlook net% 27.1 31.6 26.3 19.2 18.2 21.7
ANZ-Roy Morgan - consumer confidence net% 114.0 114.1 113.1 109.6 104.5 98.0
Weekly Benefit Numbers   17 Sep 24 Sep 1 Oct 8 Oct 15 Oct 22 Oct
Jobseeker Support number 194,907 194,571 193,632 192,612 191,904 190,731
Work Ready number 113,322 112,956 112,056 111,120 110,280 109,236
Health Condition and Disability number 81,588 81,615 81,579 81,489 81,627 81,495
Wage Subsidy August 2021 $millions 2,276 2,597 2,846 3,067 3,304 3,507
Unique jobs supported number 1,216,413 1,236,462 1,251,753 1,260,852 1,270,581 1,276,863
Businesses associated with paid application number 298,911 307962 316611 321645 326067 328455
Daily Indicators   Thu
21/10/21
Fri
22/10/21
Mon
25/10/21
Tue
26/10/21
Wed
27/10/21
Thu
28/10/21
NZ exchange and interest rates5              
NZD/USD $ 0.7206 0.7163 ... 0.7168 0.7161 0.7160
NZD/AUD $ 0.9571 0.9594 ... 0.9562 0.9512 0.9551
Trade weighted index (TWI) index 76.2 76.0 ... 75.9 75.8 75.9
Official cash rate (OCR) % 0.50 0.50 0.50 0.50 0.50 0.50
90 day bank bill rate % 0.74 0.74 ... 0.74 0.75 0.78
10 year govt bond rate % 2.37 2.43 ... 2.39 2.46 2.53
Share markets6              
Dow Jones index 35,603 35,677 35,741 35,757 35,491 35,730
S&P 500 index 4,550 4,545 4,566 4,575 4,552 4,596
VIX volatility index index 15.0 15.4 15.2 16.0 17.0 16.5
AU all ords index 7,729 7,727 7,754 7,759 7,758 7,740
NZX 50 index 13,126 13,093 ... 13,075 13,020 12,971
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 0.14 0.13 ...
10 year govt bond rate % 1.68 1.66 1.64 1.63 1.54 1.57
Commodity prices6              
WTI oil US$/barrel 82.50 84.53 84.64 85.64 82.66 ...
Gold US$/ounce 1,779.30 1,808.25 1,805.25 1,785.55 1,795.25 ...
CRB Futures index 566.60 568.36 568.78 568.88 567.91 ...

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   2021Q1 Apr 21 May 21 Jun 21 2021Q2 Jul 21 Aug 21 Sep 21 2021Q3 Oct 21
United
States

[10.6%
share of
total goods
exports]
GDP1 qpc 1.5       1.6       0.5  
Industrial production1 mpc   0.1 0.7 0.5   1.0 -0.1 -1.3   ...
CPI apc   4.2 5.0 5.4   5.4 5.3 5.4   ...
Unemployment rate1 %   6.1 5.8 5.9   5.4 5.2 4.8   ...
Employment change1 000s   269.0 614.0 962.0   1091.0 366.0 194.0   ...
Retail sales value apc   53.4 28.0 18.9   15.3 15.4 13.9   ...
House prices2 apc   15.2 17.3 19.2   20.0 19.7 ...   ...
PMI manufacturing1 index   60.7 61.2 60.6   59.5 59.9 61.1   ...
Consumer confidence1,3 index   117.5 120.0 128.9   125.1 115.2 109.8   113.8
Japan
[5.6%]
GDP1 qpc -1.1       0.5       ...  
Industrial production1 mpc   2.9 -6.5 6.5   -1.5 -3.6 ...   ...
CPI apc   -1.1 -0.7 -0.4   -0.3 -0.4 0.2   ...
Unemployment rate1 %   2.8 3.0 2.9   2.8 2.8 ...   ...
Retail sales value apc   11.9 8.3 0.1   2.4 -3.2 -0.6   ...
PMI manufacturing1 index   53.6 53.0 52.4   53.0 52.7 51.5   ...
Consumer confidence1,4 index   34.8 34.2 37.6   37.5 36.6 38.0   ...
Euro area
[6.5%]
GDP1 qpc -0.3       2.1       ...  
Industrial production1 mpc   0.7 -1.1 0.2   1.4 -1.6 ...   ...
CPI apc   1.6 2.0 1.9   2.2 3.0 3.4   ...
Unemployment rate1 %   8.2 8.0 7.8   7.6 7.5 ...   ...
Retail sales volume apc   23.7 8.7 5.6   3.1 0.0 ...   ...
PMI manufacturing1 index   62.9 63.1 63.4   62.8 61.4 58.6   ...
Consumer confidence5 index   -8.1 -5.1 -3.3   -4.4 -5.3 -4.0   -4.8
United
Kingdom

[2.3%]
GDP1 qpc -1.4       5.5       ...  
Industrial production1 mpc   -0.4 0.9 -0.6   0.2 0.8 ...   ...
CPI apc   1.6 2.1 2.4   2.1 3.0 2.9   ...
Unemployment rate1 %   4.8 4.8 4.7   4.6 4.5 ...   ...
Retail sales volume apc   41.8 24.2 8.6   1.2 -0.2 -1.3   ...
House prices6 apc   7.1 10.9 13.4   10.5 11.0 10.0   ...
PMI manufacturing1 index   60.9 65.6 63.9   60.4 60.3 57.1   ...
Consumer confidence1,5 index   -15.0 -9.0 -9.0   -7.0 -8.0 -13.0   -17.0
Australia
[13.0%]
GDP1 qpc 1.9       0.7       ...  
CPI apc 1.1       3.8       3.0  
Unemployment rate1 %   5.5 5.1 4.9   4.6 4.5 4.6   ...
Retail sales value apc   23.8 7.1 2.9   -2.9 -0.7 ...   ...
House Prices7 apc 8.9       19.8       ...  
PMI manufacturing1 index   61.7 61.8 63.2   60.8 51.6 51.2   ...
Consumer confidence8 index   118.8 113.1 107.2   108.8 104.1 106.2   104.6
China
[31.5%]
GDP apc 18.3       7.9       4.9  
Industrial production apc   9.8 8.8 8.3   6.4 5.3 3.1   ...
CPI apc   0.9 1.3 1.1   1.0 0.8 0.7   ...
PMI manufacturing1 index   51.1 51.0 50.9   50.4 50.1 49.6   ...
South
Korea

[2.9%]
GDP1 qpc 1.7       0.8       0.3  
Industrial production1 mpc   -1.9 -1.3 2.3   0.2 -0.7 ...   ...
CPI apc   2.3 2.6 2.4   2.6 2.6 2.5   ...

(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

Last updated: 
Tuesday, 2 November 2021