QSBO Highlights Cyclical Stretch
Just how hot is the NZ economy? Judging by pricing intentions in this morning’s Quarterly Survey of Business Opinion (QSBO), not very. But look at the survey’s capacity constraint variables and it’s clear the economy is relatively heated. And that this is likely to remain the case for a while yet, with the QSBO’s improved growth measures more consistent with annual GDP running around trend (2.5-3.0%).
Oil Pressure On External Deficit To Ease
New Zealand’s current account deficit widened to 3.6% of GDP for the year to September 2018 from 3.3% in the year to June 2018. This matched market (and our) expectations so nothing to cause market movement. But it’s worth noting that this is the largest annual deficit since 2009. Higher oil prices contributed to a bigger deficit in Q3, but a recent collapse will see the reverse over coming quarters.
(Most) Businesses Shake Some of Their Gloom
As much as today’s ANZ survey might have started running to the rescue of our middling macro-economic forecasts (no thanks to agriculture), it also registered a cooling in its inflation gauges. However, the details revealed that the drop in inflation expectations was very much concentrated in the retail sector; but also that the retail sector lifted its own-pricing intentions to +46.2, from an already-high +42.4 in November.
Slower Pace
New Zealand’s services sector experienced a decrease in expansion levels during November, according to the BNZ - BusinessNZ Performance of Services Index (PSI).
BNZ Bankers Survey - Full Report
BNZ’s bankers launch a new measure of business, conditions and confidence in NZ
December 17 2018 - If you really want to know how the economy is performing, ask a banker who knows their customer well. That’s the premise behind Bank of New Zealand’s Quarterly Business Bankers’ Survey launched today.
BNZ Bankers Survey - Dashboard
BNZ’s bankers launch a new measure of business, conditions and confidence in NZ
December 17 2018 - If you really want to know how the economy is performing, ask a banker who knows their customer well. That’s the premise behind Bank of New Zealand’s Quarterly Business Bankers’ Survey launched today.
Holding Firm
Activity in New Zealand’s manufacturing sector for November experienced a similar result to the previous month, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).
Fiscal Forecasts Weather Toned-Down GDP
Today’s Half-year Economic and Fiscal Update (HYEFU) was, in broad respect, very similar to the May Budget, as we expected it would be. Yes, there was a little bit of surplus pruning regarding the nearer term. But this was the consequence of toned-down economic forecasts, which now look less vulnerable to disappointment. So the end result is arguably a more assured set of fiscal projections.
GDP Wellbeing Back In Focus
Gross Domestic Product (GDP) doesn’t matter…until it does. And it did today, with its September quarter growth sagging to 0.3%, compared to market expectations of 0.6%. Upward revisions to recent history helped soften the blow. And the Q3 GDP details only shored up our view that Q4 GDP will expand solidly. However, the Q3 GDP outcome, patchy as it was, adds to other factors likely to nourish the Reserve Bank’s dovish leanings.
Activity Defying Confidence
Economic activity has been doing better than weak confidence readings would have you believe. This applies to agriculture as much as it does to the wider economy. Tractor registrations are at their highest level since the 1970s. Sure the outlook has soften a little in some areas, like dairy prices, albeit that this has been partly driven by very strong milk production on generally favourable weather conditions. Lamb prices remain strong.
RBNZ in Summer Hibernation
We reckon there is a strong argument for interest rate normalisation. New Zealand is at maximum sustainable employment, the output gap is zero and inflation, both headline and underlying, is near 2.0%. Be that as it may, there is clear RBNZ reluctance to shift rates higher and it is fair to say that there is little evidence that inflation is about to get out of control with rates where they are. Consequently, we find ourselves lowering our prospective interest rate track and suggest current market pricing is about right, for now at least.
ANZ Survey: Same Old, Same Old
There was nothing in today’s ANZ Business Outlook to change our view of the world. And, importantly, we doubt there was anything in it to change the central bank’s perceptions either.
Uptick in Activity
New Zealand’s services sector experienced a second consecutive improvement in expansion levels, according to the BNZ - BusinessNZ Performance of Services Index (PSI).
Maximum Sustainable Employment Breached?
We’ve been saying it for some time now. How can the RBNZ seriously contemplate cutting its cash rate (from its present record low) when the economy is in a position of maximum sustainable employment? That’s the view we had when the unemployment rate was 4.4%. Following today’s labour market data it now sits at 3.9%.
NZ Construction Outlook
We remain hopeful the current growth phase in construction can be extended for some time. The expansion is likely to be dominated by residential building, in particular, multi-unit dwellings. Nonetheless, the headwinds are growing and capacity constraints are becoming more binding both of which will limit the pace of the future expansion. And for those trying to make money in the sector, frustration will grow further as staffing issues become more problematic and cost pressures increase.
Disconcerting Undertones
There was enough in today’s data to support our view that the New Zealand economy will hang together despite the headwinds that it is facing. But there is gathering evidence that those headwinds are blowing relatively strongly and, in some cases, from unexpected directions. This will leave us pondering the prospect that the wheels might fall off, particularly were we to be hit by either some form of external shock or a very dry summer. Nonetheless, now is not the time for the RBNZ to react to those risks by cutting interest rates, particularly when pricing data suggest a diametrically opposite course of action.