Economic Week - August 30
by Nick Clark

Farm debt mediation update
This week Federated Farmers’ Vice President Andrew Hoggard appeared before the Primary Production Select Committee to present Federated Farmers’ submission in support of the Farm Debt Mediation Bill to.
We had a good hearing from the Committee members who were clearly very focused on the Bill and keen to ensure it is fit for purpose.
After hearing submissions the Committee will deliberate on the Bill and consider any necessary changes.  It is required to report the Bill back to the House by 4 November.

Business confidence slumps again
‘Nothing good to say’ – that was the assessment from ANZ on the results of its latest monthly Business Outlook Survey.
In August a net 52.3% of respondents expected the economy to worsen over the coming 12 months, an 8 point deterioration on July’s already grim result.  For agriculture sentiment actually improved 10 points, but it remains by far the most negative sector with a net 68.3% expecting the economy to worsen.
Own activity, the more accurate predictor for economic growth slipped 5.5 points to a net 0.5% expecting their activity to reduce over the coming 12 months.  This is the first time that indicator has gone negative since the depths of the Global Financial Crisis.  Agriculture was a bright spot enjoying a 9 point rise in sentiment to a net 14.3% expecting activity to increase.  It was the most positive sector for own activity.
Worryingly, employment intentions fell 3 points to a net 9% of firms intending to reduce employment, the lowest since mid-2009. Also worryingly, investment intentions fell 4 points to -4.  Agriculture’s investment intentions were particularly weak (a net 23.3% expecting investment to fall), possibly a reflection of concern and uncertainty about government policy as well as banks toughening up on credit conditions.
Profit expectations fell 4 points to a net 20% of respondents expecting profitability to decline, the lowest since mid-2009.  Agriculture was also the most pessimistic about profitability with a net 32.6% expecting it to worsen (much the same as July).
The global economy continues to worry the business community but in New Zealand cost pressures are also causing worry, especially in the retail sector which is most hit by the big increases in the minimum wage but least able to pass on the costs. 
The big cut to the OCR certainly hasn’t helped boost confidence but to be fair there is only so much the Reserve Bank can do.  Other aspects of government policy need to come to the party but too many of its policies are causing concern and uncertainty, including on the environment, climate change and employment.

National’s economic policy
This week the National Party released the latest in a series of policy discussion papers, this one on the economy.  It’s ‘Growth Agenda’ has three main aims:

  • Responsible economic management delivery world-class public services;
  • A more productive and competitive economy that lifts household incomes; and
  • A lower cost of living for all New Zealanders.

Most of National’s economic policies hark back to those pursued by the Key-English Governments and would undo a number of changes made by the current government.  These include reinstating public service targets, repealing recent employment law changes, reversing the ban on new oil and gas exploration, removing ring-fencing of losses on rental property, repealing the regional fuel tax, and spending more of the revenue raised from road users on roads.  It also reprised its previous policy of raising the age of eligibility of NZ Superannuation from 65 to 67 starting from 2037.
Some notable new policies include legislating to index tax thresholds to the cost of living, requiring government departments to pay contractors on time and within 30 days, updating restrictions on biotechnology, and looking to repeal 100 regulations in its first six months in office.  It also seems more amenable to take on more long-term debt to boost infrastructure investment.
National has invited feedback and we will be submitting on the discussion paper.

Exports down
Goods exports fell in July, according to Statistics NZ’s monthly Merchandise Trade Statistics.
For the month of July goods exports were worth $5.0 billion, down $309 million (or 5.8%) on July last year.  Exports of milk powder, butter and cheese dropped 16.1% to $1.3 billion, while meat was down 6.6% to $589 million, and wool was down 13.9% to $33 million.  Fruit was the big exception, up 22.7% to $448 million.
Goods imports were worth $5.7 billion in the month of July 2019, up $173 million (or 3.1%) on July 2018.  This resulted in a monthly trade deficit of $685 million.
For the year to July 2019, goods exports were worth $59.1 billion, up $2.9 billion (or 5.1%). Milk powder, butter and cheese rose 3.1% to $14.8 billion, meat was up 6.4% to $7.6 billion, but wool was down 0.9% to $545 million.  Fruit was up 19.9% to $3.5 billion.
For the year to July 2019, goods imports were worth $64.5 billion, up $3.8 billion (or 6.3%).  This resulted in an annual goods trade deficit of $5.5 billion.

Retail spending lull
The volume of retail sales showed little change in the June 2019 quarter, according to Statistics NZ’s quarterly Retail Trade Survey.  
Comparing the June 2019 quarter with the March 2019 quarter the total volume of retail sales rose a seasonally adjusted 0.2%, after a 0.7% rise in March, while the total value of retail sales (with price effects included) rose 0.7% after rising 0.1% in March.
Industry movements were divided during quarter, with sales volumes higher for seven industries and lower for eight.
Comparing June 2019 with June 2018 the total value of retail sales was up 3.4% and it was also up 2.9% when adjusted for price effects.

NIWA Soil Moisture Data

NIWA’s latest soil moisture maps (as at 9am Thursday 29 August) show that soil conditions across country are ‘about average’ for this time of year. 

 

 

 

Exchange Rates

The NZ Dollar fell against the TWI and most of our main trading partners, the exception being the Chinese Renmimbi.  .

 

 

NZ Dollar versus

This Week

(29/8/19)

Last Week (22/8/19)

Last Month (29/7/19)

Last Year (29/8/18)

US Dollar

0.6317

0.6402

0.6635

0.6708

Australian Dollar

0.9389

0.9450

0.9596

0.9142

Euro

0.5699

0.5775

0.5958

0.5741

UK Pound

0.5175

0.5278

0.5360

0.5216

Japanese Yen

66.87

68.17

71.98

74.63

Chinese Renminbi

4.5292

4.5241

4.5657

4.5718

Trade Weighted Index

70.80

71.42

73.08

72.53

Source: Reserve Bank of NZ

 

Wholesale Interest Rates

Over the course of the week 90 Day Bank Bill interest rate was essentially unchanged (up 1 basis point), but the rate for 10 Year Government Bonds lost 3 basis points.  The OCR is next reviewed on 25 September.

 

 

This Week

(29/8/19)

Last Week (22/8/19)

Last Month (29/7/19)

Last Year (29/8/18)

OCR

1.00%

1.00%

1.50%

1.75%

90 Day Bank Bill

1.19%

1.18%

1.50%

1.91%

10 Year Government Bond

1.07%

1.10%

1.50%

2.61%

Source: Reserve Bank of NZ

 

 

 

 

Nick Clark

30 August 2019