Shoe-Gazing on Inflation
With nervousness about tomorrow’s June quarter CPI inflation not proving robust, there is even more reason to consult the various core measures. Amongst these, the Reserve Bank’s sectoral-factor version for non-tradables will be worth checking out. It ticked up to 2.6 y/y in Q1.
There will be no prizes for guessing that tomorrow’s NZIER Quarterly Survey of Business Opinion (QSBO) will offer a shakier view on the economy than it did three months ago. The question is; how much worse? But also bear in mind that a good deal of the angst relates to policies, and capacity constraints, which are bound to inflate costs.
RBNZ OCR Preview: Where There’s A Will
“The Official Cash Rate will remain at 1.75 percent for some time to come”. That’s not our emphasis, but the opening policy line from May’s Monetary Policy Statement (MPS). Yes, it was followed by the Bank stating that the direction of its next move “is equally balanced, up or down.” But, practically, the “will” was strong, and indicates the way. It will take a lot to budge the Reserve Bank from its on-hold mentality.
GDP Riding the Clutch
Any underperformance in Q1 GDP growth is likely to reflect identifiable drags of a transitory nature, which, in turn, should support the idea of stronger growth in Q2. Acceleration post Q1 is certainly the message from the latest Performance of Manufacturing and Services Indices.
Manufacturing Survives Slings and Arrows
Our worst fears around Q1 GDP look to have been allayed. Still, it’s looking relatively slow. In particular, manufacturing activity appears to have dodged a number of bullets during the March quarter.
A Sapping Start to 2018
Our production-GDP growth estimate for Q1 has edged down to 0.5%. And even this is sweating on the three remaining key partials – any one of which could yet print a clanger. But as nervous as we are on this, we still believe GDP growth in Q2 will largely make up for any perceived deficiencies in Q1. Providing consumer spending holds up OK, that is – with spiking fuel prices arguably more than offsetting the (selected) government hand-outs due to the household wallets from 1 July.
Cattle Disease Adds To Business Angst
Thursday’s ANZ business survey will arguably be the market’s focal point. However, the immediate attention will be this afternoon’s government announcement on how it plans to tackle the cattle disease Mycoplasma bovis – a factor in the agriculture sector’s current pessimism, despite strong commodity prices. We will monitor this process intently, including for any significant impacts it might have on our macro-economic views.
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.