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NZ: A Busy Week Ahead...

Data Flash (New Zealand)

Following a quiet fortnight, the coming week's local data calendar is extremely busy. In this note, we preview the key data: Q1 Balance of Payments, Q1 GDP, May Merchandise Trade and the June NBNZ Survey. The Q2 WestpacTrust McDermott Miller Consumer Confidence survey and May Building Consents round out the week's releases.

Key Data

Q1 Balance of Payments (Tues. 26th 10.45am NZT)

Following today's revisions to historical data, we look for a current account deficit of $40m in Q1 ie approximate balance. As a result, the annual balance is expected to decline to 4.9% of GDP from an estimated 5.6% of GDP in Q4. We expect an improvement in the balance of goods and services (in seasonally adjusted terms) to have been a key driver of the improved result. As usual, uncertainty regarding the volatile investment income balance is likely to prove a key driver of any forecast error. After rising sharply in Q4, our forecasts have incorporated a modest decline in the investment income deficit in Q1. Prior to the today's revisions - which added 0.2% of GDP to the annual deficit - the range of market expectations for the annual current account deficit spanned 4.6% to 5.5% of GDP.

Overseas Merchandise Trade (Thu. 28th 10.45am NZT)

The first release of merchandise trade data is expected to confirm a further decline in the annual trade deficit, as a very favourable movement in the terms of trade continues to reinforce modest growth in net export volumes. We expect a surplus of $350m this month, reducing the annual deficit to $487. As usual, a breakdown of the exports data will not be made available until next month. The higher than expected outcome for exports in April owed much to the outstanding performance of the dairy sector, with the non-primary manufacturing sector seemingly constrained by the weakening in global growth, notwithstanding the low level of the NZD.

NBNZ Business Survey (Fri. 29th 6.00am NZT)

The May NBNZ survey revealed a further fall in general business confidence but only a modest decline in firms' expectations of their own activity outlook. With some of the negativity surrounding the risk of drought having dissipated in recent weeks (helped by rainfall in the South Island), and with domestic economic data having printed better than expectations, overall confidence is expected to have remained broadly stable this month (at around +4), breaking the downward trend. However, we would not be surprised to see a further small fall in firms' expectations of their own activity outlook (perhaps to +25, from +31 last month). At present, this indicator remains consistent with GDP growth of over 3% yoy. Markets will also focus on the pricing expectations components of the survey, which have edged down grudgingly in recent months, but remain at relatively high levels.

Q1 GDP (Fri. 29th 10.45am NZT)

The last important domestic data due before the RBNZ's 4 July OCR review is expected to reveal Q1 GDP growth of 0.8% qoq. Strong growth in the service sector is expected to be the key driver this quarter, with the primary sector also making a positive contribution. In contrast, the manufacturing sector appears to have been broadly flat in Q1 while the construction sector is likely to record a further fall in activity, reflected last year's sharp decline in dwellings consents. The range of market forecasts for this release spans 0.0% to 0.8%. However, with most forecasts pitched at around the 0.7%/0.8% mark, the median lies towards the top of that range. Given current market pricing, a low outcome would probably have most impact on the market.

Other Data

WestpacTrust MCDermott Miller Consumer Confidence (Wed. 27th NZT)

Despite the most recent monthly survey reporting a rise in consumer confidence (from +11 to +20), the WestpacTrust quarterly survey is likely to report a fall in confidence from the high recorded in March. We expect the overall index to decline from 121.6 to around 115. But with any value over 100 indicating that optimists outweigh pessimists, confidence will remain at robust levels.

Building Consents Issued (Wed. 27th 3.00pm NZT)

A 6.5% mom rise in dwellings consents in April resulted in the first positive annual movement since December 1999. Following such a strong result, we expect a flat outcome in May although a small retracement cannot be ruled out (following a very strong 16%mom rise in April, the number of house sales fell 5% in May). The overall value of building consents (including non-residential construction) should print around NZD530m.

Darren Gibbs, Senior Economist, New Zealand


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