Economic Week - November 29

by Nick Clark


Feds Banking Survey
Many thanks to the 1,306 farmers who responded to Federated Farmers’ November 2019 Banking Survey.
Over the past six months farmers’ satisfaction with their banks has continued to erode (from 71% to 68% being ‘very satisfied’ or ‘satisfied’) and those feeling under ‘under pressure’ has continued to rise (from 16% to 23%).  This carries on a distinct trend over the past two years of falling satisfaction and rising pressure.   
That this trend is continuing is disappointing but not at all surprising given what we have been hearing over the past several months of banks getting tougher and changing conditions as they seek to contain or even reduce their exposure to agriculture and also as they respond (prematurely) to the Reserve Bank’s proposals on bank capital.
Arable was the farming group with the lowest level of satisfaction (60%) and the most reporting coming under pressure (30%).  Sharemilkers though were happier. 
There were also reductions over the past six months in average interest rates for mortgages (down from 5.0% to 4.6%) and overdrafts (down from 7.4% to 7.0%) but a number of farmers reported tougher credit conditions and new and increased fees and margin rates.
The next survey will be undertaken in May 2020.

Financial Stability Report
The Reserve Bank this week released its six-monthly Financial Stability Report.  The report found that New Zealand’s financial system remains resilient but the Reserve Bank considers higher bank capital requirements to be necessary to improve longer-term resilience. It noted that the financial system is still vulnerable to tail risks stemming from highly indebted households and dairy farms, and global risks are considered to have increased since the May report.
With regard to households, the Reserve Bank decided not to ease loan-to-value ratio restrictions because of concern that very low interest rates could fuel excessive risk-taking.  This shouldn’t have been a surprise given the revival in the housing market and increases in house prices. 
Meanwhile, the report’s summary had this to say about dairy debt:

Despite above-average dairy commodity prices and reasonable profitability for the dairy sector as a whole, a significant share of the dairy sector remains financially vulnerable. Progress has been made by some borrowers in reducing debt and restoring balance sheet sustainability. However, the most indebted farms have struggled to achieve profitability and repay debt. A significant share of dairy loans are still being closely monitored by banks, and the share of loans that are non-performing has increased. The sector faces longer-term cost challenges in reducing its environmental impacts and many farms have little resilience to weather another period of low commodity prices.

A noteworthy point in the report was that for the year to September 2019 horticulture lending grew by 18% while lending to the dairy sector decreased by 0.9%.  This is helping to diversify banks’ agriculture lending, but rapid growth can be a sign of overly fast expansion and could increase the risk of boom-bust.

Meat and Dairy Lift Exports
Goods exports rose were up in October according to Statistics NZ’s monthly Merchandise Trade Statistics – thanks to strong growth for dairy and meat.
Comparing October 2019 with October 2018, goods exports were up 4.3% to $5.0 billion.  Exports of milk powder, butter and cheese were up 19.7% to $1.5 billion and meat exports were up 29.4% to $580 million.  However, most other commodities fell, including wool (down 23.2% to $62 million), forest products (down 18.8% to $393 million), and fruit (down 23.1% to $156 million).
Goods imports were down 1.4% to $6.0 billion in October 2019.  This resulted in a monthly goods trade deficit of $1.0 billion.
For the year to October 2019 goods exports were worth $59.4 billion, up 3.7% on the year to October 2018.  Exports of milk powder, butter and cheese were up 6.4% to $15.2 billion.  Meat exports were up 5.0% to $7.8 billion but wool was down 11.4% to $515 million.  Forest products was also down 1.6% to $5.1 billion while fruit was up 6.5% to $3.4 billion.
Goods imports meanwhile were up 2.2% for the year to $64.4 billion, resulting in an annual goods trade deficit of $5.0 billion, down $737 million on the year to October 2018 but still rather large.

Business confidence lifts
ANZ’s monthly Business Outlook Survey posted a strong lift in business confidence in November.
Overall, a net 26% expect the economy to worsen over the coming year.  This would normally be nothing to write home about but it is a 16 point improvement on October, which in turn had been up 11 points on September.  For agricultural respondents sentiment was broadly unchanged with a net 60% expecting the economy to worsen, only a one point improvement on October.  Retail was the big improver, up 43 points for the month, reflecting consumers opening their wallets.
Forecasts for own activity also lifted strongly, and moved back into positive territory.  A net 13% of businesses expect their activity to improve over the coming year, up 16 points on October.  Agriculture surged 31 points in the month, with a net 26% expecting improvement. 
Although water policy remains a concern for agricultural respondents, ANZ pointed to positive factors such as strong commodity prices and a lower exchange rate working together to boost farmgate incomes and profitability.  It also noted the ‘ETS lifeline’, the Government’s decision to work with the primary industry on an emissions reduction commitment, as positive for farmer sentiment.  However, the survey found agriculture’s investment intentions remaining negative and it is also the sector expecting the strongest increase in costs.

Retail Surges
Retail had a boomer September 2019 quarter, with sales surging 1.6% according to Statistics NZ’s Retail Trade Statistics.  It followed an insipid 0.2% rise in the June 2019 quarter and it also was much stronger than market expectations of around 0.5%.
11 out of 15 sectors posted quarterly increases, with electrical and electronic goods retailing posting the largest rise. Of those that fell, the biggest fall was for accommodation.
On an annual basis, the value of total retail sales was up 4.2% compared to the September 2018 quarter.  
August’s cut to the OCR and a reviving housing market might have played a part in making consumers open their wallets during the quarter.  Although September’s big increase is not expected to be sustained, these statistics suggest that September quarter GDP could come in stronger than expected. 

Next week
On 5 December the Reserve Bank will announce its decisions on bank capital requirements.  Its earlier proposals were controversial and farming was identified as a sector likely to be impacted adversely in terms of costs of lending and stricter credit conditions.  We engaged closely with the Reserve Bank on its proposals, including organising meetings with Federated Farmers’ provincial leaders.  We will be looking closely to see what, if any changes, have been made that might ease the burden on farmers.

NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 28 November) show conditions drying out, especially in the North Island.  Northland, Auckland and northern Waikato regions are significantly dryer than usual, as well as Tararua and Wairarapa.  In the South Island, Southland and Otago south of Dunedin are still significantly wetter than usual.

Exchange Rates

Over the course of the week the NZ Dollar was up against the TWI and against all our major trading partners.



NZ Dollar versus

This Week


Last Week (21/11/19)

Last Month (29/10/19)

Last Year (28/11/18)

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 3 basis points) but the rate for 10 Year Government Bonds was down 7 basis points.  The OCR is next reviewed on 12 February 2020.



This Week


Last Week (21/11/19)

Last Month (29/10/19)

Last Year (28/11/18)






90 Day Bank Bill





10 Year Government Bond





Source: Reserve Bank of NZ