Weekly Economic Update - 5 March 2021

Weekly Economic Indicators 5 March 2021#

Alert levels increase in response to new cases#

Higher alert levels were reintroduced for seven days, beginning Sunday 28 February, following the emergence of more community cases in Auckland. Alert levels were raised to Level 3 in Auckland and Level 2 for the rest of New Zealand.

The terms of trade rose in December…#

The merchandise terms of trade rose by 1.3% in the December quarter, following a sharp fall of 4.7% in the September quarter, to be down 1.7% on the same period a year ago. Goods export prices fell by 0.4% in the quarter, driven by lower prices for dairy products while import prices were down 1.7%, on the back of lower petroleum and petroleum product prices (Figure 1).

Figure 1: Terms of trade

Source: Stats NZ

…with further gains expected this year…#

The ANZ World Commodity Price Index rose 3.3% in February to its highest level since April 2014, driven by high prices for dairy, meat, forestry and aluminium. In local currency terms, the index was up 2.7%. Dairy prices rose 15.0% at the GlobalDairyTrade auction this week to their highest level in 7 years (Figure 2). Whole milk powder prices rose by 21.0% and skim milk powder prices were up 3.5%.

The recent strength in commodity prices is supporting export earnings at a time when the tourism sector is struggling. The recovery in global growth is expected to support export prices and the terms of trade over 2021.

Figure 2: GlobalDairyTrade selected prices

Source: Haver

…but border closures are providing an offset#

Stats NZ also report that spending by overseas visitors and students fell to $1.3 billion in the December 2020 quarter, down by two thirds from the same period in 2019. Although a large number of international visitors and students remain in the country, despite the borders being closed since March 2020, the absence of the usual seasonal increase in tourism over recent months is being felt acutely by some businesses.

Building consent issuance remains strong…#

Seasonally adjusted new dwelling consents increased by 2.1% in the month of January. In the 12-months ended January residential consents were up 5.8% to their highest level since 1974.

Multi-unit dwelling consents drove the increase, up 8.3% in the month while standalone consents fell 3.8%. Multi-unit dwelling consents issuance as a proportion of all dwelling consents issuance has been trending upwards for the last 10 years, driven by the shift to denser housing arrangements. The strong pipeline of consents bodes well for construction activity in coming months.

…but consumer confidence eases#

Consumer confidence eased 1 point to 113 in the February release of the ANZ-Roy Morgan Consumer Confidence survey and remains under its historical average of around 120.

Australian GDP rebounds…#

Australia’s GDP rebounded 3.1% in the December quarter compared to the previous quarter, to be 1.1% lower than the same quarter a year ago, a better performance than most other major economies (Figure 3). Private investment increased by 3.9% in the quarter, contributing 0.7 percentage points to growth. Household spending rose by 4.3%, though remained 2.7% down on a year ago. From a peak of 22.0% of disposable income in the June quarter, the household saving ratio declined further, reaching 12.0% in the December quarter. This is still much higher than pre-pandemic levels of around 5%. The terms of trade rose 4.7% (driven by higher iron ore prices), contributing to a 4.2% increase in nominal GDP in the quarter, the strongest growth since 1983, pushing it 0.8% above year-ago levels.

Figure 3: Real GDP in selected countries

Source: Haver

…as the RBA maintains policy support#

The Reserve Bank of Australia (RBA) left its policy settings unchanged, with the targets for the cash rate, the Term Funding Facility and the yield on the 3-year Australian Government bond remaining at 0.1%. In light of recent bond market volatility, the RBA reiterated its commitment to maintaining the 3-year Yield Curve Control (YCC) target. It also said that it was “prepared to do more” quantitative easing if needed. The RBA does not expect to increase interest rates until 2024 at the earliest.

Manufacturing conditions mixed across Asia#

The manufacturing sectors in Thailand and Malaysia continued to contract in February, with the Purchasing Managers’ Indices (PMIs) falling to 47.2 and 47.7, respectively (Figure 4). Elsewhere in Asia, manufacturing conditions were more positive, although a slight loss in momentum is evident. In China, the PMI declined from 51.5 to 50.9. Total new work expanded only marginally, and at the weakest pace in nine months, with the global pandemic weighing on export sales. However, a notable improvement in business confidence suggests manufacturers remain positive about the global economic outlook in the coming quarters. In Indonesia, the manufacturing sector continued to expand, but the rate of growth reached a four-month low, while inflationary pressures were the strongest since late-2018.

Figure 4: PMIs in selected Asian countries

Source: Haver

More fiscal spending in the UK#

UK finance minister Rishi Sunak announced a further £44 billion of fiscal spending measures in the 2021/22 budget, bringing the government’s total pandemic support to £344 billion. The furlough scheme for workers was extended until the end of September. On the revenue side, the Chancellor announced that the tax rate on company profits above £250,000 will rise from 19% to 25% in April 2023. The UK Debt Management Office will be looking to sell £296 billion of bonds in the 2021/22 fiscal year, almost £50 billion higher than market expectations, which drove bond yields higher. The economy contracted by 10% in 2020 and is forecast to grow by 4% this year and by 7.3% in 2022. It is expected that in five years’ time, the economy will still be 3% smaller than it would otherwise have been.

High-Frequency Indicators (Domestic)#

Traffic Movement#

Source: Waka Kotahi NZ Transport Agency

Freight Movement#

Source: Waka Kotahi NZ Transport Agency

Electricity Demand#

Source: Electricity Authority

Retail Spending#

Source: Paymark and Verifone data via Data Ventures

Jobseeker (JS) and Income Support Recipients#

Source: MSD

People Movements at Selected Locations#

Source: Google

High-Frequency Indicators (Global)#

Trade Weighted Index#

Source: RBNZ

Volatility Index#

Source: Haver

US Activity and Equities#

Sources: Federal Reserve Bank of New York, Haver

Labour Markets#

Source: Haver

COVID-19 Cases#

Sources: World Health Organisation/Haver

World Commodity Prices#

Source: ASB

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