Economic Week - December 20

by Nick Clark

This is my last weekly economic update for 2019 and it’s a biggie with lots of news this week as we end the year.
I’ll be back in the New Year, but in the meantime best wishes for Christmas and the festive season.

Mixed picture from GDP
Data revisions have had a big impact on 2018 and 2019’s economic growth, according to Statistics NZ’s September quarter Gross Domestic Product.
The New Zealand economy expanded 0.7% in the September quarter, beating market expectations of 0.5%. However, June quarter growth was revised down markedly from 0.5% to just 0.1% and March quarter was also revised down from 0.6% to 0.4%.
Agriculture, fishing and forestry had a strong quarter, with its GDP up 1.5%, beating both manufacturing (up 0.6%) and services (up 0.4%).  The sector’s annual growth, comparing the September 2019 quarter with September 2018’s, was 2.4%.
Overall, September 2019’s GDP was up 2.3% on September 2018’s, a slight uptick from June’s annual increase of 2.1%. Revisions saw growth stronger in 2018 than previously reported, but with a sharper slowdown in 2019’s growth.
Recent economic data for the current December quarter, including for commodity prices, house prices, retail sales, and business and consumer confidence all suggest GDP growth will pick up, but the question is whether it will be sustained?

Export growth set to continue
Strong meat and dairy prices have driven an upward revision in forecast primary sector exports, according to MPI’s Situation & Outlook for Primary Industries December update.
For the current year (to June 2020) primary sector exports are forecast to climb 3.3% to $47.9 billion.  This is more than $1.7 billion more than forecast as recently as September and is largely thanks to substantial upward revisions for dairy, meat and wool, and forestry.  Higher global commodity prices and a weaker NZ Dollar were cited as key reasons.
Dairy exports are forecast to climb to $19.6 billion, up $1.5 billion on the year to June 2019 (and $1.0 billion more than expected in September), while meat and wool exports are forecast to reach $10.4 billion, up $254 million on June 2019 (and $360 million more than expected in September).
MPI also expects primary sector exports to rise further in 2020/21 to $48.9 billion on the back of continued strength in commodity prices.

More beef cattle, fewer sheep
2019 saw an increase in beef cattle but a decrease in sheep, according to Statistics NZ’s provisional Agricultural Production Statistics.
As at 30 June 2019, there were 3.9 million beef cattle (up 5.4% on 30 June 2018) and 26.7 million sheep (down 2.2%).  Dairy cattle were relatively stable at 6.4 million (down 0.5%).  There was a steep decline of deer (down 15.9%).
1.0 million tonnes of grain crops were harvested in the year to 30 June 2019 (up 3.3% on the previous year) from 123,600 hectares planted (up 2.0%).

Milk powders drive GDT down
Dairy prices fell sharply in the last Global Dairy Trade auction for 2019, with the GDT Price Index down 5.1% compared to the last auction a fortnight ago. 
Although there were rises for cheddar, lactose, and rennet casein they were more than offset by large falls for the higher volume products, most notably whole milk powder (down 6.7%) and skim milk powder (down 6.3%).  Anhydrous milk fat and butter also slipped.
Overall, the average selling price was US$3,302 and 35,748 tonnes of product were sold.
This week’s large fall followed a small fall at the previous auction which had in turn broken a two-month run of increases.  But despite a disappointing end to 2019 the GDT Price Index is still 15.0% higher than at the same time last year.

Dairy drives November export growth
Goods exports were worth $5.2 billion in November, according to Statistics NZ’s monthly Merchandise Trade Statistics.  This was up 7.6% on November 2018.
Dairy led the way, with exports of milk powder, butter and cheese jumping 23.7% to $1.8 billion, but meat also had a great month with its exports up 15.7% to $636 million.  Forestry and fruit both suffered steep drops (down 15.6% and 23.7% respectively) but wool posted a 3.8% increase to $60 million.
Goods imports were up 2.0% to $6.0 billion, with strong increases for machinery (up 12.7%) and vehicles (up 10.0%).  There was a monthly goods trade deficit of $753 million.
On an annual basis, goods exports were worth $59.7 billion for the year to November 2019, up 3.9% on the previous year.  Exports of milk powder, butter and cheese were up 8.6% to $15.6 billion, while meat exports were up 5.4% to $7.9 billion.  Wool exports were down 10.0% to $518 million.  Forestry was down 3.7% to $5.0 billion but fruit was up 4.8% to $3.4 billion.
Good imports were worth $64.5 billion for the year to November, up 2.4% on the previous year.  The annual goods trade deficit was $4.8 billion, down $740 million on the previous year.

Confidence lifting
Business confidence improved again this month according to ANZ’s December Business Outlook Survey.
Overall a net 13.2% of respondents expect general business conditions to worsen over the coming 12 months, a 13-point improvement on November.  Although still negative, business confidence has jumped 41 points since September’s low point.  Agricultural respondents remain more pessimistic than businesses generally with a net 35.1% expecting the economy to worsen, but this was a 25-point improvement on November.
Turning to own activity, a net 17.2% of respondents expect their activity to increase over the coming 12 months, up 4 points on November.  For agricultural respondents a net 15.8% expect their activity to increase, but this was down 10 points.   Availability of credit was a particularly big constraint for agricultural respondents.
Consumer confidence has also been lifting on the back of stronger house prices, translating into stronger retail sales. 
Federated Farmers’ own six monthly take on farmer confidence will be held in January – Feds members should keep an eye out in the New Year for your invitation to participate.

House prices rising
The median house sales price reached a new record high in November, according to the Real Estate Institute of NZ.  The national median hit $630,000, up 8.6% on November 2018, with 10 regions setting new record highs.
Median house prices in Auckland increased by 2.9% to $885,000, while median house prices for the rest of the country increased by 10.3% to a new record high of $535,000.  Median days to sell was also down 2 to 33.
Although median sales prices were up, sales volumes were down 1.9% for the year.  Volumes were up 8.7% in Auckland but were down 6.1% across the rest of the country. 

Balance of Payments
New Zealand’s seasonally adjusted current account deficit was $2.7 billion in the September 2019 quarter, according to Statistics NZ’s Balance of Payments & International Investment Position.  This was $339 million larger than that for the June quarter.
The goods trade deficit widened in the quarter due to lower exports and higher imports while the services trade surplus narrowed due to imports rising more than exports.
On an annual basis, the current account deficit for the year ended September 2019 narrowed to $10.3 billion (3.3 percent of GDP) from the $10.6 billion deficit for the September 2018 year (3.6 percent of GDP).
Meanwhile, New Zealand’s net international liability position widened by $6 billion from June to reach $172.8 billion and it also widened as a share of GDP to 56.3% (up from 54.9%).

Safer banks but more expensive banks?
The Government this week announced reforms of the Reserve Bank’s financial stability responsibilities.   
Looking at experience across the Tasman the Government will toughen requirements for directors and executives of all banks and deposit takers, including finance companies.  It will also introduce a deposit insurance scheme protecting deposits up to $50,000.  The reforms envisage more hands-on regulation of banks and the Reserve Bank will be allowed to impose levies on banks and deposit takers to fund it.
An important question is how much will deposit insurance and stronger regulation cost banks and the economy and how will increased costs be passed on to bank customers, including farmers?

Minimum wage hiked
The Government this week announced that from 1 April 2020 the minimum wage would be increased from $17.70 per hour to $18.90 per hour, a further towards the Government’s goal of increasing it to $20 per hour by 2021. 
As well as having an impact on the profitability and viability of many small businesses is it a coincidence that large increases in the minimum wage over the past two to three years have coincided with a marked slowdown in employment growth?

NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 19 December) show the effect of recent rain, including in areas that only last week had been significantly drier than usual. Most of the country’s soils are now either significantly wetter than usual or within normal ranges.

Exchange Rates

Over the course of the week the NZ Dollar was down a little against the Trade Weighted Index and was mixed against our main trading partners.  There were small declines against the US Dollar and the Chinese Renminbi and rises against the Australian Dollar, the Euro, the UK Pound, and the Japanese Yen.



NZ Dollar versus

This Week


Last Week (12/12/19)

Last Month (19/11/19)

Last Year (19/12/18)

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 up 5 basis points and the rate for 10 Year Government Bonds was up 6 basis points.  The OCR is next reviewed on 12 February 2020.



This Week


Last Week (12/12/19)

Last Month (19/11/19)

Last Year (19/12/18)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ