Weekly Economic Update - 30 July 2021

Weekly Economic Update 30 July 2021#

Quarantine-free travel with Australia paused#

Quarantine-free travel with Australia was paused for Australian travellers for at least eight weeks from midnight Friday, 23 July, as the Delta variant continues to spread in some states. New Zealanders returning from Australian states and territories, except NSW, could return on green flights until 30 July.

The monthly trade balance returns to surplus#

The seasonally adjusted monthly trade balance returned to surplus in June as export values recorded their strongest June month on record, by a margin of almost $1 billion. Import values have now made a full recovery, reaching a record high in the June quarter of $16.6 billion (Figure 1).

Figure 1: Goods trade values (3-month sum s.a.)

Source: Stats NZ

Record high values for goods exports in both the June month and the June quarter were supported by high prices and strong and dairy prices. The rise in world commodity prices is yet to completely feed through, suggesting growth in export values will continue.

While supply chain congestion is causing difficulty for many exporters, our main export products are showing a high degree of resilience. On a seasonally adjusted quarterly basis, total goods exports rose by nearly 10%, with dairy and logs recording increases in both quantities and prices. Quantities of meat and fruit exports fell in the quarter, though both showed a strong recovery in the June month.

Regional activity indicators continue upward trend...#

The June update of the Regional Activity Indices (RAIs) showed that annual activity growth is up in all regions, with most activity indicators up on the same time last year (see page 4 and 5).

Labour market indicators have witnessed particularly strong growth in recent months, with sharp falls in jobseeker numbers and extremely high growth in the number of online job ads. The number of job ads is now well above pre-COVID levels in all regions.

...and confidence eases as inflation builds#

Activity indicators eased slightly but remain at robust levels in July according to the ANZ Business Outlook (ANZBO). Headline business confidence eased 3 points to -3.8% and own activity fell 6 points to +26.3% expecting conditions to improve.

Figure 2: Inflation, expectations and pricing intentions

Source: Stats NZ, ANZ

Inflation pressures continued to rise. Cost expectations were up 2 points to a net 88.2% and a net 61.3% of respondents intend to raise their prices. Inflation expectations rose to 2.7%, the highest since 2012 (Figure 2), and a late-month sample indicated that inflation expectations continued to lift to 3.3%.

Change of frequency of online publication#

The Weekly Economic Update (WEU) will no longer be published on the Treasury website every week on Fridays going forward. We are reinstating the Monthly Economic Indicators (MEI) publication, which means the WEUs for each month will be released alongside the MEI.

Global PMIs mixed...#

Purchasing managers’ indices (PMIs) for July painted a mixed picture of the pace of recovery in advanced economies (Figure 3). The composite PMI for the euro area reached a more than 20-year high, driven by the services index, boding well for the strength of the recovery in the September quarter. In contrast, the composite PMI in Australia fell into contractionary territory, reaching a 14‑month low due to renewed restrictions on activity following COVID-19 outbreaks in several states. The United Kingdom (UK) index also fell, though remains relatively high. For the United States (US), a fall in the services component more than offset a rise in manufacturing. Ongoing supply chain disruption, rising price pressures and difficulty in finding labour were key themes across the PMIs.

Figure 3: PMIs in selected advanced economies

Source: Haver

...amidst ongoing inflation pressures...#

Australia’s consumer price index (CPI) increased by slightly more than expected in the June quarter, with quarterly and annual increases of 0.8% and 3.8%, respectively. Base effects were behind much of the increase, with government policies causing price declines during this time last year. Annual core inflation (as reflected by the trimmed mean measure) increased from 1.1% to 1.6%.

In Canada, annual CPI inflation fell to 3.1% in July from a decade-high 3.6% in June, while the core rate came in lower than expected at 2.2%.

Meanwhile, house price inflation in the US set another record in May, with the S&P CoreLogic Case-Shiller Home Price Index increasing by 16.6% in annual terms. More recent data suggest that a slowing in the housing market has already begun, with high prices dampening demand.

...as monetary stimulus maintained...#

The European Central Bank (ECB) maintained its stimulatory stance at its recent six-weekly policy review meeting and revised its forward guidance on interest rates. Policy interest rates are expected to remain at their current levels or lower until inflation forecasts rise ‘durably’ above its target of 2%. The monetary policy statement further noted that there might be ‘a transitory period in which inflation is moderately above target’.

The US Federal Reserve Bank (Fed) also left all its policy instruments unchanged at its July meeting. The Fed acknowledged that progress has been made towards meeting its price stability and full employment goals and reiterated that the rise in inflation has mostly been due to transitory factors. At the press conference following the meeting, Fed Chair Powell said that further substantial progress is needed on the jobs front and that ‘the Fed is nowhere near considering raising rates’.

...while confidence is mixed#

In the US, the Conference Board’s Consumer Confidence Survey rose for a sixth month in a row in July to close to pre-pandemic levels. Respondents viewed jobs as being plentiful, while concerns about the spread of the Delta variant of COVID-19 were not evident in the data.

Meanwhile, Germany’s IFO Business Climate Index fell for the first time in six months in July, with supply chain disruption, skilled labour shortages, and rising COVID-19 infections weighing on sentiment.

South Korea’s GDP expands#

South Korea’s GDP grew by 0.7% in the June quarter, in line with expectations and underpinned by private and government consumption growth. Base effects propelled the year-on-year rate to 5.9%, the quickest growth in a decade. Economic growth is expected to slow in the September quarter owing to increased restrictions put in place to contain the country’s worst outbreak of COVID‑19 in July.

High-Frequency Indicators#

Traffic and Freight Movement#

Source: Waka Kotahi NZ Transport Agency

Card Spending#

Source: Marketview data via MBIE

People Movements at Selected Locations#

Source: Google

Jobseeker (JS) and Income Support Recipients#

Source: MSD

COVID-19 Cases Per Million People#

Source: World Health Organisation/Haver

World Commodity Prices#

Source: ASB

Regional Activity Indicators#

Note: 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.

Northland#

Auckland#

Waikato#

Bay of Plenty#

Gisborne#

Hawke's Bay#

Taranaki#

Manawatu-Whanganui#

Wellington#

Tasman/Nelson/Marlborough#

Canterbury#

West Coast#

Otago#

Southland#

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