Economic Week - December 13

by Nick Clark

Farm Debt Mediation Bill passes
Parliament this week passed the Farm Debt Mediation Bill.
Given the heightened pressure being placed on farmers Federated Farmers is pleased the Bill has been passed and now we look forward to it going live in June 2020.  In the meantime, MPI will be setting up the architecture for it and working to get mediation bodies accredited.
Farm debt mediation should help facilitate better conversations between farmers and their banks and will, if necessary, provide a more structured way to address problems.
New Zealand First and MP Mark Patterson deserve thanks for driving the Bill and the Minister of Agriculture and officials deserve credit for their work to develop it.  We were also impressed with the constructive way the Primary Production Select Committee heard submissions and worked on the Bill.

Rural mood revives
Higher commodity prices have boosted farmer sentiment according to Rabobank’s latest Rural Confidence Survey.
In the December survey, improved confidence across all sectors saw the overall reading rise 21 points to -12% from the -33% in the September survey when farmer confidence plunged.
Rising commodity prices were the key factor cited by farmers with an optimistic outlook, while government policy was the major concern among those with a negative outlook.  Freshwater management and bank capital proposals were reported to be significant concerns. 
It is remarkable given the strength in commodity prices that there are still more pessimists than optimists.  According to Rabobank this survey saw the highest proportion of farmers citing government policy as a concern in the survey’s history.
Federated Farmers’ own six-monthly take on farmer confidence will be held in January.

Surpluses evaporate
Previously rosy forecasts for fiscal surpluses have dried up in the face of a slowing economy and ever-growing government spending, according to the Half Year Economic & Fiscal Update, released this week.
Just seven months ago Budget 2019 forecast an operating surplus before gains of losses of $1.3 billion for the current 2019/20 year but the latest forecast is for an operating deficit of $943 million – the first deficit since 2014.  The deficit is expected to be short-lived, with a tiny $57 million surplus forecast for 2020/21 and then bigger surpluses in the years following.  We’ll have to wait and see if that will be the case.
As Federated Farmers has been predicting since the Budget, the slowing economy combined with strong growth in government spending, as measured by a $6.7 billion increase in core Crown expenses this year, has more than wiped out in a single year what had been a huge surplus.
Yet despite the forecast return to deficit this year the Government seems unconcerned and it is still planning to increase its core Crown expenses by a further $5 billion next year.
Treasury forecasts the economy to recover over the next two years rather than slow further but if the economy continues slowing we could see the deficits to continue and perhaps even widen.  And that’s before the factoring the risk of an economic shock from the global economy or a natural disaster.
The commentators who claimed that last year’s $7.3 billion surplus meant the Government should relax and spend up large were somewhat premature but don’t expect them to change their tune.  There is increasing pressure on government parties to abandon fiscal responsibility to drive ‘change’. 
While there is a case to make more use of debt to fund much-needed infrastructure improvements, running operating deficits and borrowing to fund these deficits is risky if not dangerous when looming demographic changes will only add to spending pressures on health and superannuation. 
This could force future governments to take painful decisions, both in terms of spending and taxation.

Infrastructure spend-up
The Government also announced its priorities for Budget 2020 in its Budget Policy Statement.  This includes provision for an additional $12 billion to boost capital investment over the next five years to $50 billion.
At 20% of GDP net Crown debt is low, 10-year Government Bond rates are at record lows and there is no shortage of projects after years of under-investment and strong population growth.  So, it’s as good a time as any to invest in infrastructure, provided of course it is on projects that will provide good value for money and will boost economic activity.
The temptation to engage in pork barrel politics by funding low value projects to win votes should be avoided as should allowing anti-car and anti-truck ideology get in the way of crucial roading projects, especially in rural and regional areas where there are no viable alternatives for moving people and goods.
Rural and regional roads and bridges are ageing and have been deteriorating over time and they require significant work to upgrade and replace.  They will need a decent share of the mooted $6.8 billion extra capital spending for transport.
Even if the money is there a key risk is whether projects are ready to go.  For example, has the land been acquired, have the works been consented by councils, and crucially is there the capacity in the construction industry, especially for big and complex projects?  If not, there could be delays and cost overruns.  We have seen the risk of this with KiwiBuild and Auckland light rail.
Unfortunately, there wasn’t a lot of detail on how and where the extra money for infrastructure will be spent.  That detail will come next year and announcing infrastructure projects will likely be a key plank for the election.

Food Price Index
Food prices fell in November due mainly to seasonally lower vegetable prices, according to Statistics NZ’s monthly Food Price Index.
Overall the Food Price Index was down 0.7% in November compared to October, although it was down just 0.1% after seasonal adjustment.
Fruit and vegetable prices were down 3.0%, with fruit up 4.8% but vegetables down 8.4%.  Meat, poultry and fish prices were up 0.1%, with beef and veal up 0.5% but mutton, lamb and hogget down 2.5%.  Grocery food prices were down 0.2%, with breads and cereals up 1.4% but milk, cheese and eggs down 1.0%.
On an annual basis, comparing November 2019 with November 2018, the Index was up 2.4%, similar to last month’s annual increase of 2.5%.  Fruit and vegetable prices were up 0.4%, with fruit up 1.5% but vegetables down 0.4%.  Meat, poultry and fish prices were up 4.7%, with beef and veal up 4.7% and mutton, lamb and hogget up 0.7%.  Grocery food prices were up 1.9%, with breads and cereals up 5.3% and milk, cheese and eggs up 1.9%.

Economic Survey of Manufacturing

Manufacturing sales values were up in the September 2019 quarter according to Statistics NZ’s Economic Survey of Manufacturing.
Although the volume of total manufacturing sales fell 0.3% the value of total manufacturing sales rose 0.9%.
Volumes were dragged down by meat and dairy processing (down 4.5%), but despite this higher commodity prices received by meat and dairy processors meant the value of their sales was up 2.0%.

Black Friday boosts retail
Retail spending grew strongly in November, according to Statistics NZ’s monthly Electronic Card Transactions
Total retail card spending was up 2.6% in November, adjusted for seasonal effects. This is the largest month-on-month increase since January 2017.  On an annual basis retail card spending was up 5.1% on November 2018.
There was particularly strong growth for durables such as recreational goods, hardware and appliances, likely reflecting the growing popularity of events such as ‘Black Friday’.

Tourism growth flattening
Statistics NZ’s latest monthly International Travel Statistics showed there were 283,800 overseas visitor arrivals in October 2019, up just 300 compared with October 2018.  While visitor numbers from Australia were up 7,000, several other major source countries declined – including China (down 3,600) and the United States (down 2,700).
For the year to October 2019 there were 3.9 million visitor arrivals, up 81,500 (or 2.1%) on the year to October 2018.  This is the slowest growth for an October year since 2012.

Next week
Next week sees the release of statistics on September quarter Gross Domestic Product and Balance of Payments, November month overseas trade, provisional results from the 2019 Agricultural Production Survey, and the final Global Dairy Trade auction for 2019.

NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 12 December) show soil conditions continuing to be significantly wetter than usual in Southland and much of Otago, as well as in patches around Golden Bay, Marlborough Sounds, Wellington to Kapiti, and South Taranaki.  Meanwhile, conditions are significantly dryer than usual in Northland, Auckland, much of Waikato and Bay of Plenty, as well as Tararua to Wairarapa, and coastal North Canterbury.

Exchange Rates

Over the course of the week the NZ Dollar was up slightly overall against the Trade Weighted Index and had only small up and down movements against our major trading partners.



NZ Dollar versus

This Week


Last Week (5/12/19)

Last Month (12/11/19)

Last Year (12/12/18)

US Dollar





Australian Dollar










UK Pound





Japanese Yen





Chinese Renminbi





Trade Weighted Index





Source: Reserve Bank of NZ


Wholesale Interest Rates

Over the course of the week the 90 Day Bank Bill interest rate was down 1 basis point but the rate for 10 Year Government Bonds was up 10 basis points.  The OCR is next reviewed on 12 February 2020.



This Week


Last Week (5/12/19)

Last Month (12/11/19)

Last Year (12/12/18)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ