Economic Week - April 13

by Nick Clark

Good news for sheep and beef

2017/18 is shaping up to be a better year for sheep and beef farmers, according to Beef+Lamb NZ’s Mid-Season Update .

The Update forecasts an 11% increase in gross farm revenue to $518,900, thanks to strong prices for both sheep and cattle, although wool revenue will be down. Total expenditure is also expected to increase 4.6% to $392,600, with repairs and maintenance and fertiliser the largest upward contributors.  The upshot is a 39% increase in farm profit before tax to $126,300, the highest farm profit since 2011/12.

Lamb exports are expected to increase 15% to $3.01 billion, the first time they have exceeded $3 billion.  Higher prices are the main driver with volumes only up slightly.  Farm-gate prices for lamb are expected to average $122 per head.

Beef exports are expected to decrease 1.1% to $3.23 billion, with lower volumes driving the decrease.

Gloomy businesses

The latest NZIER Quarterly Survey of Business Opinion shows businesses continuing to expect a deterioration in economic conditions. In March 2018 a net 9% of businesses expected worsening economic conditions over the coming months – only a slight improvement on the net 11% in December 2017.

Business confidence had fallen sharply in the December 2017 quarter in the wake of the new government taking office, and this pessimism did not recover to any great extent in the first quarter of 2018.

Firms’ expectations about demand in their businesses held up reasonably well but they were not optimistic about profitability or that it will improve. Businesses felt that cost pressures have intensified, and they have not been able to pass them on in the form of price increases.

With labour costs rising and labour shortages still acute, firms have become more circumspect about increasing employee numbers. Expect a slowdown in employment growth.

Pessimism was pervasive across the regions, and especially in the provinces.  Farms are not surveyed for the QSBO but those that do business with them are.

Retail spending up

Total retail card spending was up 1.8% in the March 2018 quarter, according to Statistics NZ’s Electronic Card Transactions.  

Spending rose across all six retail industries in the March quarter. The largest rises came from the consumables (grocery and liquor retailing) industry, up $125 million (2.2%) and the hospitality industry, up $87 million (2.9%).

On an annual basis, card spending was up 4.3% on the March 2017 quarter.

NIWA Soil Moisture Data

NIWA’s latest soil moisture maps (as at 9am Thursday 12 April) show the impact of this week’s southerly blast.  The East Cape is the region that continues to be significantly drier than usual, with more localised dry patches in Rangitikei and northern Waikato.

Exchange Rates

NZ Dollar versus	This Week (12/4/18)	Last Week (5/4/18)	Last Month (12/3/18)	Last Year (12/4/17)
US Dollar	0.7363	0.7309	0.7296	0.6948
Australian Dollar	0.9491	0.9482	0.9284	0.9265
Euro	0.5953	0.5953	0.5927	0.6548
UK Pound	0.5191	0.5190	0.5266	0.5565
Japanese Yen	78.68	78.18	78.01	76.10
Chinese Renmimbi	4.6207	4.6046	4.6235	4.7925
Trade Weighted Index	75.61	75.31	75.05	75.94

Source: Reserve Bank of NZ

 

Wholesale Interest Rates

	This Week (12/4/18)	Last Week (5/4/18)	Last Month (12/3/18)	Last Year (12/4/17)
OCR	1.75%	1.75%	1.75%	1.75%
90 Day Bank Bill	2.03%	1.96%	1.90%	1.96%
10 Year Government Bond	2.78%	2.78%	2.98%	3.03%

Source: Reserve Bank of NZ