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Weekly economic update

Weekly Economic Update - 3 December 2021

Weekly Economic Update - 3 December 2021

While activity continues showing signs of recovery, uncertainty and elevated inflationary pressures are still present. The construction sector should be supported by high building consents issuance, although inflationary and capacity pressures may slow the pace of expansion. Meanwhile, continued strength in commodity prices support the terms of trade and capital imports suggest increased business investment in the September quarter. We expect the move to the COVID-19 Protection Framework will lift economic activity in Auckland and will monitor this in coming weeks.

Inflation and uncertainty hit businesses…

While still elevated relative to pre-COVID-19 levels, business activity and confidence eased slightly in October, with increased uncertainty and historically high inflation expectations. The final November ANZ Business Outlook showed headline business confidence falling 3 points while businesses own activity outlook dipped 7 points. Cost pressures, pricing intentions and inflation expectations all remain high, suggesting ongoing pressure on Consumers Price index (CPI) inflation (Figure 1).

Figure 1: Cost and inflation pressures

Figure 1: Cost and inflation pressures

Source: ANZ

…and consumer confidence eases…

With increased uncertainty and elevated inflation, consumer confidence eased further in November. The ANZ-Roy Morgan consumer confidence survey showed consumer confidence easing 1 point to 97 in November, continuing the theme of below average confidence levels seen since COVID-19 arrived. Rising interest rates, combined with lower real wages, has likely caused the slight fall in house price inflation expectations, potentially pointing to a slowdown in housing market activity.

…while building consents support construction

Construction activity should be well supported over the year ahead as annual building consents issuance reaching a fresh record high of 47,715 in the year to October. However, construction firms continue to highlight strong intentions to raise prices and their 1-year ahead inflation expectations rose to 4.1%, indicating that robust price growth in the construction sector will likely persist into the next year. Combined with material shortages and capacity constraints, this could lead to delays for some projects.

Goods terms of trade reach a record high

The goods terms of trade in the September quarter increased 0.7% to a record high, reflecting continued strength in global commodity prices. Global freight costs remain elevated, and a fall in travel services exports reflects the disruption of trans-Tasman travel. Imports increased faster than exports, widening the quarterly trade deficit, and will weigh on GDP.

Exports volumes fell as a result of a lockdown-induced drop in forestry exports and an easing in dairy exports after an unusually strong June quarter. However, import volumes continued growing strongly as retailers stock up for the holiday season.

Elevated investment intentions are reflected in strong imports of capital goods in the September quarter, boding well for business investment as the economy moves to the COVID-19 Protection Framework.

Figure 2: Capital goods imports and business investment

Figure 2: Capital goods imports and business investment

Source: Stats NZ

The OECD describes the global economic recovery as increasingly uneven as developing economies lag behind. Australia's GDP fell by less than expected and a rebound appeared to take hold in October, and Japan also showed signs of recovery. Inflation reached a record high in Europe, and the US is set to reduce monetary stimulus faster, though a new COVID-19 variant raises concern.

OECD Economic Outlook: A Balancing Act

The OECD released its December Economic Outlook this week, characterising the global recovery as uneven and increasingly imbalanced as the disparity between advanced and developing economies continues to widen. Strong policy support and vaccination in developed countries has pulled output up to its pre-pandemic path, though supply constraints and rising inflation pressures are also bringing risks and policy challenges. Compared to the OECD forecasts released in May, global growth is expected to be slightly weaker in 2021 owing to supply chain disruption and the spread of the Delta variant (Table 1).

Table 1: OECD Economic Outlook December 2021
Real GDP growth 2021 2022 2023
World 5.6 4.5 3.2
Change from May - 0.2 + 0.1 NA
NZ 4.7 3.9 2.5
Change from May + 1.2 + 0.1 NA

Source: OECD

Australian GDP falls by less than expected…

Australia's real GDP fell by 1.9% in the September quarter compared to the June quarter, a smaller decline than expected and far less severe than the contraction experienced in the June 2020 quarter (Figure 3). After previously recording four consecutive quarters of strong growth, GDP is now slightly below pre-pandemic levels.

Figure 3: Real GDP

Figure 3: Real GDP

Source: Haver

Household spending was the main driver of the decline, though a sharp increase in the household saving ratio suggests that a drawdown in savings should support the economic recovery now that COVID-19 restrictions have begun to ease. Retail sales in October support this view, rising 4.9% to be in line with pre-Delta levels.

…as Japan's output shows signs of recovery

Industrial production in Japan rose 1.1% in October after falling for the previous three months as supply shortages constrained activity. Automotive production drove the increase as parts shortages eased, and manufacturers' plans to reach normal production in December will support the recovery further. Retail sales also recovered in October as pandemic restrictions eased, up 1.4% to be in line with levels prior to the Delta outbreak.

Inflation hits record high in the euro area…

The preliminary estimate for November Consumer Price Index (CPI) inflation in the euro area was 4.9%, the fastest rate of annual inflation since the euro was introduced in 1999. Unemployment remained high in October, falling to 7.3%, reducing the chances of a swift monetary policy response.

…with faster US monetary policy taper likely…

US Federal Reserve Chair Jerome Powell stated this week that inflation can no longer be considered transitory, and that a sooner end to the Fed's asset purchase programme appears warranted. This suggests that asset purchases will conclude in the first quarter of next year, with interest rate increases likely to follow shortly after. Strong November employment and manufacturing data released this week support Powell's view that the economy now requires less monetary stimulus.

…though Omicron variant brings uncertainty

The World Health Organisation identified a new COVID-19 ‘variant of concern' named Omicron, which has been found in countries around the world including Australia. The variant appears to be more infectious than previous strains, though it is not yet clear whether it is more deadly. The CEO of BioNTech believes that the vaccine the company co-created with Pfizer will protect against severe symptoms from the variant, and stated that a new vaccine could be relaunched within 100 days.

Date Key upcoming NZ data Previous
6 December Building work put in place 2.0 (qpc)
10 December Electronic card transactions 9.5 (mpc)

High-Frequency Indicators[1]

Traffic and Freight Movement

Traffic and Freight Movement

Source: Waka Kotahi NZ Transport Agency

People Movements at Selected Locations

People Movements at Selected Locations

Source: Google

COVID-19 Cases Per Million People

COVID-19 Cases Per Million People

Source: World Health Organisation/Haver

Card Spending

Card Spending

Source: Marketview data via MBIE

Jobseeker (JS) and Income Support Recipients

Jobseeker (JS) and Income Support Recipients

Source: MSD

World Commodity Prices

World Commodity Prices

Source: ASB

Note
  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 -0.1 5.6
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 -0.7 0.7 0.5 1.0 2.0
Unemployment rate1 % 4.1 5.3 4.8 4.6 4.0 3.4
Participation rate1 % 69.9 70.1 70.2 70.4 70.5 71.2
LCI salary & wage rates - total2 apc 2.1 1.8 1.6 1.6 2.1 2.4
QES average hourly earnings - total2 apc 3.0 4.2 4.3 4.0 4.0 3.5
Core retail sales volume apc -11.7 7.6 4.4 5.4 30.2 -3.2
Total retail sales volume apc -14.2 8.1 4.7 6.6 33.3 -5.2
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   Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Nov 21
Merchandise trade balance (12 month total) NZ$m -276.6 -1088.4 -2922.3 -4105.2 -4920.3 ...
Dwelling consents - residential apc 24.0 24.2 42.3 24.4 10.5 ...
House sales - dwellings apc 10.4 -9.1 -23.6 -36.4 -21.7 ...
REINZ - house price index apc 29.9 30.4 30.7 30.0 29.9 ...
Estimated net migration (12 month total) people 991.0 1,810.0 731.0 796.0 ... ...
ANZ NZ commodity price index apc 17.5 16.9 15.4 17.4 16.4 ...
ANZ world commodity price index apc 28.0 22.2 21.5 23.6 23.7 ...
ANZBO - business confidence net% -0.6 -3.8 -14.2 -7.2 -13.4 -16.4
ANZBO - activity outlook net% 31.6 26.3 19.2 18.2 21.7 15.0
ANZ-Roy Morgan - consumer confidence net% 114.1 113.1 109.6 104.5 98.0 96.6
Weekly Benefit Numbers   22 Oct 29 Oct 5 Nov 12 Nov 19 Nov 26 Nov
Jobseeker Support number 190,731 189,855 189,309 183,165 182,583 181,971
Work Ready number 109,236 108,471 107,844 102,924 102,261 101,607
Health Condition and Disability number 81,495 81,384 81,465 80,241 80,325 80,364
Wage Subsidy August 2021  $millions 3,507 3,720 3,956 4,172 4,321 4,494
Unique jobs supported number 1,276,863 1,282,152 1,290,603 1,296,192 1,300,179 1,304,898
Businesses associated with paid application number 328,455 329,961 331,665 332,970 334,104 335,061
Daily Indicators   Thu
25/11/21
Fri
26/11/21
Mon
29/11/21
Tue
30/11/21
Wed
1/12/21
Thu
2/12/21
NZ exchange and interest rates5              
NZD/USD $ 0.6888 0.6843 0.6824 0.6817 0.6824 0.6811
NZD/AUD $ 0.9559 0.9541 0.9566 0.9544 0.9571 0.9590
Trade weighted index (TWI) index 74.0 73.6 73.5 73.3 73.3 73.2
Official cash rate (OCR) % 0.75 0.75 0.75 0.75 0.75 0.75
90 day bank bill rate % 0.80 0.80 0.80 0.81 0.86 0.86
10 year govt bond rate % 2.57 2.58 2.44 2.48 2.45 2.40
Share markets6              
Dow Jones index ... 34,899 35,136 34,484 34,022 34,640
S&P 500 index ... 4,595 4,655 4,567 4,513 4,577
VIX volatility index index ... 28.6 23.0 27.2 31.1 28.0
AU all ords index 7,737 7,600 7,562 7,587 7,558 7,536
NZX 50 index 12,795 12,629 12,532 12,719 12,724 12,670
US interest rates              
3 month OIS % 0.08 0.08 0.08 0.07 0.08 ...
3 month Libor % 0.18 0.18 0.17 0.17 0.17 ...
10 year govt bond rate % ... 1.48 1.52 1.43 1.43 1.44
Commodity prices6              
WTI oil US$/barrel ... ... 69.88 66.14 65.57 ...
Gold US$/ounce 1,788.15 1,800.80 1,785.95 1,804.40 1,789.25 ...
CRB Futures index ... 568.79 567.67 564.22 564.81 ...

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

[11.0%
share of
total goods
exports]
GDP1 qpc       1.6       0.5    
Industrial production1 mpc 0.1 0.7 0.5   0.8 0.0 -1.3   1.6 ...
CPI apc 4.2 5.0 5.4   5.4 5.3 5.4   6.2 ...
Unemployment rate1 % 6.1 5.8 5.9   5.4 5.2 4.8   4.6 ...
Employment change1 000s 269.0 614.0 962.0   1091.0 483.0 312.0   531.0 ...
Retail sales value apc 53.4 28.0 18.9   15.3 15.7 14.3   16.3 ...
House prices2 apc 15.2 17.3 19.2   20.0 19.6 19.1   ... ...
PMI manufacturing1 index 60.7 61.2 60.6   59.5 59.9 61.1   60.8 61.1
Consumer confidence1,3 index 117.5 120.0 128.9   125.1 115.2 109.8   111.6 109.5
Japan
[6.0%]
GDP1 qpc       0.4       -0.8    
Industrial production1 mpc 2.9 -6.5 6.5   -1.5 -3.6 -5.4   1.1 ...
CPI apc -1.1 -0.7 -0.4   -0.3 -0.4 0.2   0.1 ...
Unemployment rate1 % 2.8 3.0 2.9   2.8 2.8 2.8   2.7 ...
Retail sales value apc 11.9 8.3 0.1   2.4 -3.2 -0.5   0.9 ...
PMI manufacturing1 index 53.6 53.0 52.4   53.0 52.7 51.5   53.2 54.5
Consumer confidence1,4 index 34.8 34.2 37.6   37.5 36.6 38.0   39.2 39.2
Euro area
[6.5%]
GDP1 qpc       2.1       2.2    
Industrial production1 mpc 0.7 -1.2 0.3   1.3 -1.7 -0.2   ... ...
CPI apc 1.6 2.0 1.9   2.2 3.0 3.4   4.1 ...
Unemployment rate1 % 8.1 8.0 7.8   7.6 7.5 7.4   7.3 ...
Retail sales volume apc 23.7 8.7 5.6   3.3 1.5 2.5   ... ...
PMI manufacturing1 index 62.9 63.1 63.4   62.8 61.4 58.6   58.3 58.4
Consumer confidence5 index -8.1 -5.1 -3.3   -4.4 -5.3 -4.0   -4.8 -6.8
United
Kingdom

[2.0%]
GDP1 qpc       5.5       1.3    
Industrial production1 mpc -0.4 0.9 -0.6   0.3 1.0 -0.4   ... ...
CPI apc 1.6 2.1 2.4   2.1 3.0 2.9   3.8 ...
Unemployment rate1 % 4.8 4.8 4.7   4.6 4.5 4.3   ... ...
Retail sales volume apc 42.1 24.4 8.8   1.9 0.4 -0.7   -1.3 ...
House prices6 apc 7.1 10.9 13.4   10.5 11.0 10.0   9.9 10.0
PMI manufacturing1 index 60.9 65.6 63.9   60.4 60.3 57.1   57.8 58.1
Consumer confidence1,5 index -15.0 -9.0 -9.0   -7.0 -8.0 -13.0   -17.0 -14.0
Australia
[13.0%]
GDP1 qpc       0.7       -1.9    
CPI apc       3.8       3.0    
Unemployment rate1 % 5.5 5.1 4.9   4.6 4.5 4.6   5.2 ...
Retail sales value apc 23.8 7.1 2.9   -2.9 -0.7 1.9   4.6 ...
House Prices7 apc       19.8       ...    
PMI manufacturing1 index 61.7 61.8 63.2   60.8 51.6 51.2   50.4 54.8
Consumer confidence8 index 118.8 113.1 107.2   108.8 104.1 106.2   104.6 105.3
China
[31.0%]
GDP apc       7.9       4.9    
Industrial production apc 9.8 8.8 8.3   6.4 5.3 3.1   3.5 ...
CPI apc 0.9 1.3 1.1   1.0 0.8 0.7   1.5 ...
PMI manufacturing1 index 51.1 51.0 50.9   50.4 50.1 49.6   49.2 50.1
South
Korea

[2.9%]
GDP1 qpc       0.8       0.3    
Industrial production1 mpc -1.9 -1.3 2.3   0.2 -0.5 -1.1   -3.0 ...
CPI apc 2.3 2.6 2.4   2.6 2.6 2.5   3.2 3.7

(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, 7 December 2021