Economic week

September 22, 2017
by Nick Clark

Don’t forget to vote!

Tomorrow is election day and the week leading up has seen the release of a heap of information that taken together point to a solid level of economic activity.

Most notable was Statistics NZ’s Gross Domestic Product statistics which showed GDP to be up 0.8% during the quarter and up 2.5% year-on-year.  Both were around market expectations, so no surprises.

11 of the 16 industries grew during the quarter.  Most but not all of the service industries were up strongly, with record tourism pushing retail and accommodation up 2.8% for the quarter and 6.6% for the year.  Manufacturing was also strong thanks to primary processing, up 1.8% for the quarter and 2.6% for the year.  

On the downside, construction dipped 1.1% for the quarter, probably due to supply side pressures, but was still up 4.5% for the year.  Agriculture, fishing and forestry was unchanged for the quarter but was down 1.9% compared to the June 2016 quarter.

Exports rose 5.2% with exports of goods apparently posting its biggest quarterly increase in 20 years.

Population growth has been strong so GDP per capita was up a more muted 0.3% for the quarter and 0.6% for the year.

Strong population growth is showing little sign of easing, let alone ceasing, with the strong net migration story continuing in August. Statistics NZ’s monthly International Travel and Migration statistics showed a net gain 72,100 for the August 2017 year, with 132,200 arrivals, a new record, and 60,100 departures.

The largest annual net migration gains continued to be from China and India, but both were down on the previous year, as was the net gain with Australia.  The biggest upward movers were from the UK, the US and South Africa.

The same statistics showed that in August 2017, 234,000 visitors arrived in New Zealand, a new August record and up 6% on August 2016. Almost half of the visitor arrivals were people coming to New Zealand from Australia.  Visitor arrivals numbered 3.7 million in the August 2017 year, also a new annual record, and up 9% from the August 2016 year.  New Zealand residents also undertook a record number of overseas trips.

Tourism continues to vie with dairy as our biggest export earner.  Although visitor numbers and spending is up strongly, dairy prices have recovered from their 2014-16 lows and this week’s Global Dairy Trade auction saw a further increase in prices consolidating the gains of the past year.

The GDT Price Index was up 0.9% compared to the previous auction a fortnight ago.  Only three of the seven products on offer increased, but one of those was the biggest product by volume, whole milk powder which was up 0.6%.  Meanwhile butter continued its run of strong gains, up 1.2%. 

The average selling price was $US3,368 and 34,117 tonnes were sold.

Overall, the GDT is up 17.7% compared to the same time last year but, as previously observed, despite some ups and downs along the way it has been virtually unchanged since late December 2016.

Strong services exports and a reducing goods trade deficit helped improve the current account in the June quarter.  Statistics NZ’s Balance of Payments statistics revealed a current account deficit of $1.6 billion for the quarter and $7.5 billion for the year or 2.8% of GDP.

The quarterly goods deficit decreased by $677 million compared to the March quarter to sit at $446 million. The services surplus increased $295 million to reach $1,280 million, the highest on record.  This was due mainly to strong tourism numbers and spending.

Meanwhile, as at 30 June 2017 New Zealand’s net international liability position was $154.2 billion (57.5 percent of GDP) and our net external debt position was $145.5 billion (54.3 percent of GDP).  

A deficit of 2.8% of GDP is relatively small by historical standards (and compares to nearly 8% in 2008) and our net liabilities and debt positions have been improving since the late 2000s.   Both are a reflection of an economy that seems more robust to economic ups and downs than it was in the past.

Farm sales have fallen but sales prices have held up, according to the latest Rural Statistics from the Real Estate Institute of NZ.  For the three months ended August there were 311 farm sales, down 20.9% on the same three-month period last year.   REINZ believes poor weather in many regions has deterred farmers from wanting to sell due to the impact of heavy rainfall on soil and pasture conditions.

In all, 1,707 farms were sold during the year to August 2017, 3.3% fewer than for the year to August 2016.  This overall modest decline masks some big movements by farming type.  There were 46% more finishing farms, 31% more dairy farms, but 26% fewer grazing farms and 26% fewer arable farms sold. 

The median price per hectare for all farms sold in the three months to August 2017 was $27,928, up 1.6% on the three months ended August 2016. The REINZ All Farm Price Index was up 8.9% on the same time last year. The REINZ All Farm Price Index adjusts for differences in farm size, location and farming type, unlike the median price per hectare, which does not adjust for these factors.

Exchange Rates

Source: Reserve Bank of NZ

Wholesale Interest Rates

Source: Reserve Bank of NZ