Economic week

March 17
By Nick Clark

Economic growth was weaker than expected in the December quarter.  Statistics NZ’s quarterly Gross Domestic Product statistics showed quarterly growth of 0.4 percent, well below expectations of around 0.7 percent.  Furthermore, the previous September quarter’s 1.1 percent growth was also revised down to 0.8 percent. 

Annual growth, comparing the December 2016 quarter with the December 2015 quarter, eased back to 2.7 percent.  At first glance this looks impressive but is less so when considering the high rate of population growth.  GDP per capita actually slipped slightly in the quarter.

Agriculture, forestry and fishing was one of the drags on growth, down 0.8 percent for the quarter and down 2.1 percent annually. The wet spring was the main culprit.  Contractions in agricultural production and manufacturing production together knocked 0.3 percentage points off quarterly growth.  In contrast, construction and most services categories grew strongly.

New Zealand’s current account deficit narrowed in the December quarter, according to Statistics NZ’s quarterly Balance of Payment Statistics. 

The deficit was $2.3 billion in the three months to December, while the deficit was $7.1 billion for the year ended December 2016 versus $8.3 billion for the year to December 2015.  As a percentage of GDP the annual deficit was 2.7 percent, down on 3.4 percent for the prior year.

The main reason for the improvement in the current account deficit was the tourism boom which took the services export surplus to $1.2 billion for the quarter.  In contrast the goods export deficit increased further.

New Zealand’s net positions also improved when comparing December 2016 with September 2016.  Its net liabilities fell from $166.1 billion (64.8 percent of GDP) to $156.5 billion (59.9 percent of GDP) and its net external debt fell from $149.1 billion (58.2 percent of GDP) to $143.5 billion (55.0 percent of GDP).

There were 436 farm sales in the three months ended February 2017, according to the Real Estate Institute’s Rural Statistics.  This is down 8.0 percent on the same period last year.  For the year ended February 2017 there were 1,765 farm sales, down 0.8 percent on the year before.

The median price per hectare was $27,395, up 5.5 percent on the same period three-month period last year.  The REINZ All Farms Price Index was also up 4.0 percent on February 2016.

According to REINZ, “caution, uncertainty and delayed decision-making” is the sentiment as the rural sector “grapples with volatility of income, volatility of climate and the ever increasing emphasis on compliance and environmental issues”.

 Food prices increased by 0.2 percent in February compared to January, according to Statistics NZ’s Food Price Index.  This was mainly due to fruit and vegetables which were up 1.8 percent. The grocery food group was up 0.2 percent, with prices up 1.9 percent for the milk, cheese and egg sub-group. In contrast the meat, poultry and fish group was down 1.5 percent, with beef down 0.6 percent and sheepmeat down 5.4 percent. 

 On an annual basis food prices were up 2.2 percent, the largest year-on-year increase in more than five years.  Again, fruit and vegetables were the main culprit, up 7.7 percent. The grocery food group was up 2.3 percent, with milk, cheese and egg prices up 5.8 percent.  Again bucking the overall movement, the meat, fish and poultry group was down 2.0 percent, with beef up 1.0 percent and sheepmeat down 0.6 percent.  There were bigger drops for pork and poultry in particular.

 Next week the Reserve Bank will be reviewing the Official Cash Rate.  It will almost certainly keep the OCR unchanged at 1.75 percent and will likely signal that it will remain unchanged for some time to come.

 Exchange Rates

Source: Reserve Bank of NZ

Wholesale Interest Rates

Source: Reserve Bank of NZ