The near-stalling in March quarter retail volume growth flattens one of the few backbones we expected for Q1 GDP growth. However, we believe the economy will expand solidly in Q2, and will accelerate over the second half of 2018. This is partly on the back of the fiscal stimulus that is scheduled to hit household wallets from 1 July.
Budget Will Have an Accounting Focus (More’s The Pity)
Appeasing the accountants is one thing. But any Budget should also be judged on the economic and social good it is doing. It’s usually easy for a government to spend money (especially when the books are in great shape, as New Zealand’s are). The question is whether the money is being spent in the most efficient and equitable manner. This is where the real debate should be, not simply on the accounting targets being met.
We are not anticipating any material changes in Thursday’s Monetary Policy Statement (MPS). If there are any, they are likely to be more of style than substance, given the new Governor and Policy Targets Agreement (PTA). Nonetheless, this could cause markets to read more into any nuances, and change of language, than is warranted. This may or may not be aggravated by what the new Governor, Adrian Orr, says.
All Eyes On The Labour Market
Wednesday’s Q1 labour market reports will garner the market’s attention. Perhaps even more so than usual because an employment objective is now part of the RBNZ’s Policy Targets Agreement. This raises the risk of market over-reaction to minor deviations in often volatile data. A broad set of indicators say the labour market was healthy in Q1. But ebbing confidence raises questions around the degree of strength ahead.
Five Million People
Wednesday’s ANZAC day holiday splits into two what is a generally quiet data week. While there doesn’t look to be much to move markets, there are a couple of releases that could prove important in the bigger picture. Tomorrow’s migration numbers for March fits this category, as NZ’s population heads toward five million. Friday’s trade and consumer confidence figures are also worth a look.
BNZ Markets Today
US equities increased again overnight after more positive
earnings reports from US corporates, and as US-China
trade tensions moved off the headlines for a day. The
USD is mixed, with the NZD again being one of the
underperformers. Meanwhile, the US yield curve flattened
again, drawing a response from incoming NY Fed
President John Williams.
Downside Risk to CPI
Recent data continue to provide us with hope that the economy can continue to grow around its potential for some time to come. Importantly, the expansion should not be cut off at the knees by the central bank any time soon as CPI inflation remains at the bottom of the RBNZ’s target range. Thursday’s Q1 CPI data should confirm this. Moreover, there is a very real chance that the RBNZ (and maybe even the market) will again be surprised to the downside when the latest price data is released.
QSBO Stronger Than Its Seams
Overall, we anticipate a hanging-in-there type of result for tomorrow’s QSBO, rather than anything strong as an indicator of economic expansion. But this is not to lose sight of the NZIER survey’s clearest message – that the economy is getting extremely stretched.
Short and Sweet
We are keeping a close eye on labour market momentum – along with business investment indicators – given the slump in business confidence. The labour market will certainly be a key interface between a currently buoyant household sector and a less than confident business sector.
Maximum Sustainable Employment (Achieved Already?)
The government this morning confirmed a range of changes to the Reserve Bank of New Zealand’s modus operandi. These were hardly any revelation, given the prescriptiveness of the terms of the review process. . If anything, the largely reiterated inflation-related content might be seen as reinforcing a dovish bent on the part of the RBNZ. However, the new words relating to “maximising sustainable employment” might, ironically, highlight why the Bank can’t be too dovish, and might even need to turn hawkish in due course.
RBNZ to Stick Loosely to Its Script
s we’ve been saying for a good many months, the RBNZ will probably not be keen to follow the global tendency, toward less monetary stimulus – at least not soon. If there is a risk around Thursday’s OCR review it is that the Bank comes across a touch dovish, perhaps with reference to the near-term CPI. However, all up, we believe the Bank will affirm a steady-as-she-goes message.
Q4 GDP A Measure of Being Well
Thursday’s Q4 GDP report will be the highlight this week. Not that it’s looking like being a big deal, one way or the other. We estimate a steady quarterly gain of 0.7% (after its 0.6% outcome of Q3). This is what the Reserve Bank expects too, with reference to its February Monetary Policy Statement. A quarterly expansion of 0.7% would set annual growth of 3.1%. While that wouldn’t look especially strong in per capita terms it will probably appear robust to the recent transitions on the political front.
GDP Partials Dominate the Week Ahead
The week ahead will allow us to settle on our pick for Q4, 2017 GDP. At the moment we’ve got 0.5% penciled in for the quarter but the risks are very much skewed to the upside. The Reserve Bank plumped for 0.7% in its February MPS and this is, increasingly, looking like a good bet. But we’ll wait for this week’s partials before formalising our suspicions.