Economic Week, March 16

 
Weather hits GDP
A wet and cool spring and unseasonably dry and hot weather leading up to Christmas not only hit farm production but it also acted as a drag on the wider economy.  Statistics NZ’s Gross Domestic Product showed economic growth of 0.6% in the December quarter, slightly lower than the 0.7% expected by most economists.
Agricultural production was down 2.7% in the quarter, and food processing was down 0.1%.  On the other hand, service sectors showed reasonably robust growth (up 1.1%).
For the year to December 2017 GDP was up 2.9%, again slightly less than the 3.1% expected.  This is respectable growth, especially by international standards, but it is a slowdown on the levels of growth seen in 2015 and 2016.
Looking ahead the weather we have had is likely to see agricultural production continue to be a drag on growth in the current March quarter.  It is too soon to see the impact the new government is having on business decisions as opposed to business confidence.  However, consumer confidence remains relatively strong and the government’s policy direction will likely underpin consumer spending.
On balance rates of GDP growth can be expected to stay around current levels.

Food prices drop
Food prices dropped in February according to Statistics NZ’s monthly Food Price Index.
Food prices overall were down 0.5% compared to January.  Fruit and vegetables prices were down 0.9%; meat, poultry and fish prices were down 2.1% (beef & veal down 4.4%, but mutton, lamb & hogget up 0.3%); and grocery food prices were down 0.7% (bread & cereals unchanged and milk cheese & eggs down 0.1%).
For the year to February 2018, food prices overall were up just 0.1%.  Fruit & vegetables prices were down 4.4%; meat, poultry & fish prices were up 0.3% (beef & veal down 3.1% but mutton, lamb & hogget up 9.7%); and grocery food prices were up 0.1% (bread & cereals unchanged; milk, cheese & eggs down 0.8%).
Bad weather over recent weeks may affect some crops and could push up vegetable prices over the coming months.

Current account deficit widens
The current account deficit has widened, according to Statistics NZ’s Balance of Payments and International Investment Position for the December 2017 quarter. 
The December quarter deficit was a seasonally-adjusted $2.0 billion, $407 million larger than the September quarter’s. The increase was mainly driven by higher imports of aircraft, other transport equipment, and crude oil.
For the year to December 2017 the current account deficit was $7.7 billion, which equates to around 2.7% of GDP.  This is up on the year to September’s deficit of 2.5% of GDP.
NZ has a current account deficit when we spend more than we earn from our transactions with the rest of the world.  We have run current account deficits since 1973 although in recent years they have been relatively modest.
NZ’s net international liability position at 31 December 2017 was $155.2 billion (54.8 percent of GDP), continuing a downward trend evident for the past several years. Strong performance by overseas stock markets and valuation changes increased NZ’s overseas assets more than our liabilities.

House price resurgence?
The median house price for New Zealand rose 6.9% for the year to February 2018 to $530,000 according to the Real Estate Institute of NZ’s monthly Residential Market Statistics.  The Auckland median price increased 3.7% while the median price for the rest of NZ was up 8.4%.  Sales volumes were also up 1.2% compared to February 2017 but so were days to sell (from 40 to 44 days).
After taking a hit in 2017, especially in Auckland, these statistics indicate that housing market may be on the move again.  Will it last though? 

Tax Survey – thank you!
A big thank you to the 1,393 people who responded to our member survey on the Tax Working Group.  We have received and are now analysing a wealth of information which will help inform our policy and advocacy on tax.  Your help has been invaluable for gearing us up for what will be one of the big issues for the coming year!

NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 15 March) show the impact of recent heavy rains.  Soils in many parts of the country are significantly wetter than usual.  The East Cape and south-eastern Southland are the main exceptions.

Exchange Rates

Source: Reserve Bank of NZ

Wholesale Interest Rates

Source: Reserve Bank of NZ