2019: A Dawning Sense of Realism
As 2019 gets underway, a sense of realism appears to be setting in to markets. Compared to a few months ago, equities have taken a knock. While measures of volatility/risk have come back on the radar after a long slumber. Realism on the economic front is a matter of accepting that the post-GFC expansion is now very long in the tooth. This brings with it the likelihood of apparently-weak GDP growth, but also the risk of surprisingly resilient inflation.
Advance New Zealand Fair
The more we look around, the more resilience we see in New Zealand’s economic data and anecdotal evidence. This is not to say the economy is roaring away, or is immune from a marked slowdown at some stage. But, for now, it is emanating a tone of fortitude.
Manufacturing Clobbers GDP
It appears that the pressure on the Reserve Bank to hike interest rates any time soon is dissipating. Not only are petrol prices and the NZD depressing short term inflation measures but it now also looks like growth could come in on the lower side of RBNZ expectations.
Economic Growth Remains Defiant
It seems to us that the economy continues to forge ahead in a far more robust fashion than many of the business confidence indicators might have you believe. There’s no doubt confidence is being rocked by a combination of uncertainty, capacity restrictions and margin pressure. But actual economic output continues to grow. With this in mind, we will be watching this week’s suite of partial indicators for confirmation that Q3 GDP held up. At this stage we are forecasting an increase of 0.7% for the quarter, 2.9% for the year. This is the same pick as the RBNZ.
BNZ Markets Today
Currency markets are treading water ahead of the important Xi-Trump meeting this weekend. US equities are modestly lower through the morning session, while the US 10-year rate is back near the NZ close of 3.03% after earlier breaking below 3%.
Q3 Retail Volumes Pinched By Petrol Prices
All things considered, we are not freaked out by the apparent stalling in Q3 retail spending. Indeed, when thinking through the various timing influences, we probably need to bump up our expectation on Q4 retail trade growth.
More Evidence of Economic Momentum
The big news for the week has already been released. The Performance of Manufacturing (PMI) and Performance of Services indices (PSI) have bounced relatively strongly. We’d been concerned that they might go the same way as business confidence and foretell a significant economic slowdown. Had this been the case our growth forecasts would have been threatened. Fortunately, for now at least, the performance indicators are sufficiently strong for us to maintain our view that GDP can continue to expand at a near potential rate for a while longer yet. For the record, we are forecasting GDP growth of 2.9% for calendar 2018 and 2.8% for next year.
Oil Caps CPI, Replenishes Disposable Income
Bear in mind there is a full three months’ worth before the next RBNZ policy meeting; the 13 February MPS. That’s a long time between drinks. But already, the trajectory on the NZ CPI is being pruned, by the latest wave of reversal in international oil prices.
When Perception Isn’t Reality
It’s a moot point which way the numbers go in Wednesday’s ANZ business survey. But there is an argument that from where its headline results already sit, they will be hard pressed to shock the market now. This is particularly so, with a lot of the hard data on the NZ economy defying the worst of the recent business survey insinuations. Speaking of which, there is a lot of hard data on the NZ economy due this week – albeit none of it top-tier.
No Holiday For Expanding Trade Deficit
It is a short week, given yesterday’s Labour Day holiday. It is also a week short on data, with Thursday’s merchandise trade figures for September the only piece with any potential to pique the market’s interest. To be sure, a monthly trade release is unlikely to substantially alter views. But we think the deteriorating trend in the nation’s external trade flows is well worth paying attention to. It is something we have been monitoring for a while and it’s not just higher oil prices in play.