NZ Treasury: Monthly Economic Indicators (MEI)
Executive Summary:
* World outlook is stronger but
significant challenges remain
* New Zealand's
economic recovery strengthens in October
*
Inflationary outlook remains subdued despite a spike in the
September quarter
The outlook for world economic
growth was revised up by the IMF in its October World
Economic Outlook and indicators of economic activity also
lifted. Credit conditions continued to ease, making it
easier for New Zealand banks to borrow offshore and both
commodity and equity prices continued their rise. However,
significant challenges remain, which will likely restrain
the extent of the recovery over the medium term. This
month's Special Topic explores further the impact of recent
global developments on the New Zealand economy and the
challenges that lie ahead.
The recovery in New Zealand
growth appears to have strengthened over the September
quarter. Surveys show that activity and business and
consumer confidence have recovered strongly over the past
few months. However, much of this recovery can be attributed
to the forward-looking components of the surveys, with many
of the current components remaining weak. This dichotomy is
to be expected at the trough of the cycle but there is a
risk that expectations will fail to be realised so that the
recovery is not as strong as the indicators suggest. The
Treasury is expecting the economy to grow at an annual rate
of around 2% over the second half of 2009.
The pick-up
in domestic demand was also evident in recent developments
in the household sector. House sales for the September
quarter were higher than in the June quarter, so too were
the number of building consents, implying residential
investment will strengthen in coming months. Retail sales
bounced back in August, following falls in June and July,
but recent electronic card transactions suggest consumer
spending remained subdued in September. Low interest rates
and rising net immigration have been supporting demand and,
as a result, we expect private consumption to grow modestly
in the September quarter.
The annual inflation rate
fell from 1.9% in the June quarter to 1.7% in the September
quarter despite an unexpected 1.3% rise in consumer prices
in the latest quarter. Prices in the tradables sector were
0.1% lower than the same time last year while non-tradables
prices rose 3.0%. The surprise was that tradables inflation
did not fall further given the recent appreciation of the
exchange rate, which reduces the New Zealand dollar price of
imports, and the fall in world oil prices from their
elevated levels last year. Annual inflation is expected to
rise in the December quarter before trending lower over
2010.
Export commodity prices continued to recover,
although the stronger exchange rate offset much of the
benefit to exporters. The overall value of merchandise
exports fell in September, but not by as much as imports,
leading to a further narrowing of the trade
deficit.
For full Monthy Economic Indicators for
October 2009 please visit the following site: http://www.treasury.govt.nz/economy/mei/oct09.
ENDS