Economic Week - January 18
by Nick Clark
Welcome to the first Feds Economic Update for 2019. A fairly busy week for economic data.
Commodity prices slip
The ANZ World Commodity Price Index fell marginally in December. The 0.2% fall was the smallest of seven consecutive monthly decreases recorded since May. Commodity prices finished the year down 3.4%.
Dairy prices fell 2.5% in December to end the year down 6.2%. In contrast meat and fibre prices lifted 2.7% in December, with lamb and beef prices both up but wool prices down. For the year, meat and fibre prices were up 0.8% but this masked very different fortunes for lamb (up 6.1%) compared to beef (down 3.3%) and wool (down 3.6%).
The exchange rate appreciated in December and this pushed the NZD index down 0.9% for the month. The NZD index fell 2.2% for the year.
GDT strengthens
After a tough 2018 dairy commodity prices have had a better start to 2019, with prices rising at this week’s Global Dairy Trade auction on the back of stronger demand.
Overall, the GDT Price Index was up 4.2%. Skim milk powder had a particularly large increase, up 10.3%, while whole milk powder gained 3.0%. The other commodities also rose, except for rennet casein, which fell 1.4%.
The average selling price was $US3,057 and 27,909 tonnes were sold.
The GDT has now risen at each of the past four auctions since the start of December. However, it is still down 6.0% on the same time last year.
Agricultural production
Statistics NZ’s Agricultural Production Survey for 2018 has revealed there to be a fewer dairy cattle and sheep but more beef cattle and deer and also an increase in cereal crops harvested.
The Survey’s provisional results showed that as at June 2018 there were 6.4 million dairy cattle (down 1.4% from June 2017), 27.3 million sheep (down 1.0%), 3.8 million beef cattle (up 5.0%), and 0.9 million deer (up 6.8%).
For the year to June 2018 there was also 974,000 tonnes of grain crops harvested, up 3.9% on the year to June 2017. Wheat and oats were down but barley and maize were up.
Businesses less gloomy
Businesses remained downbeat about the economy at the close of 2018 but a little less so, according to the latest NZIER Quarterly Survey of Business Opinion.
The December quarter survey showed a net 18% of businesses expecting general economic conditions to worsen over the coming months, a 10-point improvement on the September quarter. Businesses also reported a lift in demand in the December 2018 quarter, with a net 4% of businesses reporting an increase in demand in the final quarter of 2018 and a net 17% expecting it to increase over the coming three months.
Businesses are looking to hire more staff and to invest in plant and machinery, but less positively for them they continue to face rising cost pressures and continue to find it hard to pass cost increases onto customers, resulting in ongoing pressure on profitability.
Farm Confidence Survey – thank you!
The NZIER survey does not include farming respondents. Federated Farmers’ mid-season Farm Confidence Survey has been in the field and we thank the 1,400 farmers who responded before it closed. The results are now being analysed. Watch this space.
Food prices fall
Lower fruit and vegetable prices kept annual food price inflation to 1% for the year ended December 2018, according to Statistics NZ’s monthly Food Price Index.
For the month of December, food prices slipped 0.2% compared to November. Fruit and vegetable prices were down 1.1%; meat, fish and poultry prices were up 0.2% (beef and veal down 1.8% and mutton, lamb and hogget down 6.4%); and grocery food items were up 0.1% (bread and cereals up 0.1% and milk, cheese and eggs down 0.2%).
On an annual basis, fruit and vegetable prices were down 6.1%; meat, fish and poultry prices were up 3.8% (beef and veal up 2.1% and mutton, lamb and hogget up 4.5%); and grocery food prices were up 1.4% (break and cereals up 1.6% and milk, cheese and eggs up 1.4%).
Bigger than expected surplus
The Government’s Financial Statements for the five months to November 2018 showed its budget surplus running ahead of forecast due to it collecting more tax and incurring fewer expenses than forecast.
The $261 million surplus for the five months beat Treasury’s expectation of an $88 million deficit. Tax revenue of $33.0 billion was $141 million higher than expected while Core Crown expenses of $35.5 billion was $409 million less than expected. Meanwhile, net core Crown debt at the end of November was $62.0 billion, $440 million higher than expected.
The higher tax revenue was due to higher than expected deductions at source and GST, offset by lower corporate tax. The lower-than-expected expenses mostly reflect underspending on the Government’s social housing and KiwiBuild policies, probably timing-related.
Treasury is forecasting a $1.7 billion surplus for the full year ending June 2019.
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 17 January) show conditions in most of the country about average or wetter than for this time of the year. The significantly drier areas than usual are the Far North, Nelson and Buller.
Exchange Rates
Over the course of the week the NZ Dollar was down slightly against the Trade Weighted Index and was also down slightly against most of our main trading partners, except the Euro and the Yen where it was up.
NZ Dollar versus
|
This Week
(17/1/19)
|
Last Week (10/1/19)
|
Last Month (17/12/18)
|
Last Year (17/1/18)
|
US Dollar
|
0.6776
|
0.6791
|
0.6790
|
0.7284
|
Australian Dollar
|
0.9447
|
0.9468
|
0.9466
|
0.9114
|
Euro
|
0.5945
|
0.5875
|
0.6006
|
0.5921
|
UK Pound
|
0.5259
|
0.5308
|
0.5396
|
0.5272
|
Japanese Yen
|
73.80
|
73.32
|
77.02
|
80.37
|
Chinese Renminbi
|
4.5765
|
4.6403
|
4.6836
|
4.6880
|
Trade Weighted Index
|
73.46
|
73.66
|
74.54
|
75.03
|
Source: Reserve Bank of NZ
Wholesale Interest Rates
Wholesale interest rates slipped over the course of the week, with the 90 Day Bank Bill down 3 basis points and the 10 Year Government Bond down 8 basis points. The OCR has been unchanged on 1.75% since November 2016.
|
This Week
(17/1/19)
|
Last Week (10/1/19)
|
Last Month (17/12/18)
|
Last Year (17/1/18)
|
OCR
|
1.75%
|
1.75%
|
1.75%
|
1.75%
|
90 Day Bank Bill
|
1.90%
|
1.93%
|
1.97%
|
1.89%
|
10 Year Government Bond
|
2.28%
|
2.36%
|
2.48%
|
2.88%
|
Source: Reserve Bank of NZ
Next week
Next week sees the release of the December 2018 quarter Consumer Price Index. Expect the annual inflation rate to ease back from the previous quarter’s 1.9% on the back of lower fuel prices.